South Korea’s petrochemical industry is closely monitoring the developments in the Middle East as the price of petrochemical raw materials could soar further on intensifying tension.

According to the Ministry of Trade, Industry and Energy on Monday, the price of naphtha stood at $717 per ton as of April 5, up 8.3 percent from February.

Naphtha is a key raw material that accounts for a significant portion of the cost of petrochemical products.

The Korean petrochemical industry uses naphtha generated during the oil refining process to produce basic products such as ethylene and propylene.

For ethylene, about 80 percent of the selling price is used to procure naphtha.

The recent upward trend in oil prices has been blamed for the rise in naphtha prices.

According to the Korea International Trade Association, prices of the country’s benchmark Dubai crude reached $90.48 per barrel, marking the highest level since October 2023.

Prices rose by 11.3 percent from the average price of $81.3 in the first quarter of 2024.

Dubai crude oil prices are projected to rise to more than $100 per barrel if the Israel-Hamas conflict escalates.

The Strait of Hormuz, which Iran could blockade, is also a major export route for Saudi Arabia, which accounted for 31 percent of Korea‘s crude oil imports in 2023.

The petrochemical industry is concerned that rising costs will hurt profitability.

“In a supply-driven market, we can pass on cost increases to selling prices to maintain profitability,” said an industry insider. “But now it is the other way around. We are in a situation of oversupply. Any increase in production costs will immediately lead to a deterioration in profitability.”

China has ramped up its production capacity to become self-sufficient in petrochemical products, contributing to a global oversupply of more than 13 million tons over the past three years.

Global production gained 23.2 million tons from 2021 to 2023 while demand added only 10.21 million tons.

By Kim Hee-su and Yoon Yeon-hae

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]