Ethylene Supply Crunch Sparks Crisis for Shipbuilding and Auto Industries
South Korea's shipbuilding and automotive industries are facing a crisis due to an 'ethylene' supply shortage. Ethylene is an essential basic raw material for the production of various products, including plastics. Recent unstable conditions in the Middle East have disrupted the supply of naphtha, the key feedstock required for ethylene production, causing domestic petrochemical companies to reduce their output.
According to the Ministry of Trade, Industry and Energy, the reliance on overseas imports for naphtha stands at 40-45%, with Saudi Arabia and Kuwait being major import sources. The Korea Institute for Industrial Economics & Trade analyzed that South Korea's structural dependence on the Middle East means energy supply disruptions directly lead to disruptions in the supply of industrial materials.
The petrochemical industry is seeing widespread factory operating cuts and force majeure declarations. YeocheonNCC, South Korea's largest ethylene production facility, declared force majeure on the 4th and has lowered production to minimal levels. Companies like Lotte Chemical, Hanwha Solutions, and LG Chem have also notified their clients of potential supply disruptions, citing uncertainty in securing raw materials. Naphtha prices have reportedly risen for four consecutive weeks since the conflict began.
An industry official explained that ethylene is a core raw material used across the entire industrial spectrum. The shipbuilding industry uses ethylene gas for cutting and processing steel plates, while the semiconductor sector utilizes it as a basic material for photoresists and cleaning agents used in circuit fabrication. Some companies face the risk of their ethylene inventory being depleted within two weeks.
In response, the Ministry of Trade, Industry and Energy held a supply and demand review meeting with the shipbuilding industry on the 13th and arranged a virtual consultation between the Korea Petrochemical Industry Council and the Korea Shipbuilders' Association on the 15th to devise plans for short-term ethylene supply.