South Korean petchem producers set to increase cheaper LPG usage, boosting output

South Korean petrochemical producers are increasingly utilising cheaper liquefied petroleum gas (LPG) as a feedstock for their crackers, consequently reducing naphtha demand from the region’s top importer, as reported by industry officials and government data.

This shift towards LPG as a raw material has enabled South Korean cracker operators to boost their operating rates, despite grappling with weak petrochemical margins due to oversupplies.

The lower naphtha imports by South Korea could further depress the margins for Asian refiners during the summer months of May and June, when LPG is typically more economical due to a decline in heating demand. The United States, Asia’s leading supplier of LPG, stands to benefit from the rising cracker demand for this feedstock.

South Korea’s naphtha imports declined to approximately 18.13 million barrels in April and 17 million barrels this month, according to Kpler data. LSEG Research estimates the April volume at around 18.59 million barrels and May imports at approximately 18.34 million barrels.

As per the Korea National Oil Corp data, both April and May levels are lower than the March volume of about 22 million barrels.

Naphtha is utilised in the production of consumer goods such as plastics and textile fibers.

LPG consumption at South Korean crackers surged by about 56% year-on-year to 7.26 million barrels in March, bringing the first-quarter usage to 16.81 million barrels, up approximately 22% from the same period last year, as indicated by government data provided by the Korea Petrochemical Industry Association (KPIA).

In contrast, naphtha consumption at crackers decreased by about 8 percent to 36.4 million barrels in March, compared to 39.4 million barrels in the same month last year, according to the data.

“South Korea’s naphtha cracking facilities have expanded their capacity to feed LPG in order to diversify their feedstock,” Lim Jonghyun, a KPIA representative, told Reuters.

“Last year, LPG prices rose due to the supply reduction caused by the Russian-Ukrainian war, resulting in a low input volume.”

As energy prices have stabilised, the input of LPG into petrochemical facilities will increase in the coming months, he added.

Utilisation rates at the Korean crackers increased to 81.8% in March versus 75.9% in the same month of 2023 and last year’s average of 74%, KPIA said.

“The input of naphtha is decreasing, and LPG is replacing it,” KPIA’s Lim said.

According to two sources with knowledge of the matter, South Korean cracker operators typically have the capability to substitute between 20 percent to 30 percent of their naphtha feedstock with liquefied petroleum gas (LPG).

On Monday, a petrochemical trader based in Singapore revealed that the cost of naphtha in Asia was approximately $100 per ton higher than LPG, incentivising petrochemical plants to continue utilising LPG as a more economical feedstock option.

The sources requested anonymity as they are not authorised to speak to the media on this matter.

Notable members of the Korea Petrochemical Industry Association (KPIA) include Lotte Chemical, Yeochun NCC, LG Chem, Hanwha TotalEnergies, and GS Caltex.