SOUTH KOREA DATA: Nov naphtha consumption rises 36% on year, auto fuel demand remains fragile

South Korea's refined oil products demand rose 8.5% year on year in November on strong naphtha consumption by petrochemical companies, but consumer transportation fuel demand remains fragile as Seoul rapidly unwinds its 'living with COVID-19' policies, industry and market participants said.

South Korea consumed 77.2 million barrels, or an average of 2.57 million b/d, of refined oil products last month, compared with 71.13 million barrels a year earlier, data from state-run Korea National Oil Corp. released in the week of Dec. 26 showed, marking the sixth consecutive month of year-on-year increase.

The increase was largely driven by strong naphtha demand as petrochemical companies seek more feedstocks to ramp up production of various base chemicals including polyethylene and polypropylene.

Naphtha consumption jumped 35.9% year on year to 37.2 million barrels in November, marking the ninth consecutive month of increase, the KNOC data showed.

Base chemicals are in high demand as manufacturing of winter clothes, medical devices and medical apparel increase sharply, while demand for plastic packaging materials and general plastics for factory goods manufacturing remains robust during the year-end holidays, marketing and plant operation sources at Hyosung Corp. and LG Chemical said.

Over January-November, South Korea's total oil products demand rose 5.9% year on year to 848.32 million barrels, while naphtha demand rose 10.2% to 409.4 million barrels.

Auto fuel demand fragile

In contrast, the country's auto fuel demand declined in November as consumers faced high retail prices, while the near-term outlook for gasoline and diesel consumption remains bleak, despite recent government tax cuts, as new social distancing and movement restrictions will likely curb population mobility, middle distillate marketers and distributors told Platts.

Gasoil demand fell 12.9% year on year to 13.68 million barrels in November, declining for the second straight month after rising for four months, while gasoline demand fell 9.8% over the same period to 6.87 million barrels.

South Korea's daily infection cases have surged to over 7,000 since early December from below 2,000 in October, and touched a record high of 7,850 Dec 15, according to the Korean Disease Control and Prevention Agency. The death toll from COVID-19 jumped by 109 Dec. 23, the biggest increase since the pandemic emerged in January 2020.

In the face of the worsening infection data, the government has tightened social distancing rules and re-imposed mobility restrictions from Dec. 18, focused on the densely populated Seoul capital area.

"Driving activity and motor fuel consumption will falter once again as more and more people are forced to work from home, while shops, restaurants and small businesses can only operate at half their usual capacity and business hours," a diesel marketer at S-Oil said.

However, consumers and small businesses could find some comfort from cooling retail fuel prices as government tax cuts begin to take effect, the fuel marketers and distributors said.

The Ministry of Economy and Finance in October lowered taxes on auto fuels by up to 20% for six months from November.

Pump prices of gasoline averaged Won 1,635/liter ($1.38/liter) in the fourth week of December, down from a 7-year high of Won 1,807/liter recorded in the third week of November.

Taxes account for almost 50% of the retail gasoline price, 40% of the diesel price and 30% of the butane price, which had prompted consumers to ask for a tax reduction.

Tepid aviation sector

South Korea's jet fuel demand, which has rebounded since August after a long slump, declined again in November, falling 5.1% year on year to 1.74 million barrels, the KNOC data showed.

Jet fuel consumption has remained under 2 million barrels/month for more than a year, compared with over 3 million barrels/month before the pandemic, as local airlines have suspended more than 50% of their flights on international routes since March 2020.

Over January-November, jet fuel demand fell 4.2% year on year to 19.07 million barrels.

Major South Korean refiners and analysts at Korea Petroleum Association expect the country's aviation fuel demand could fall by around 10%-15% month on month in December on renewed border controls and tighter travel and quarantine measures amid concerns over the new omicron coronavirus variant.

South Korea's oil product demand

(Unit: '000 barrels)

Source: Korea National Oil Corp.