South Korea's naphtha-fed steam crackers raise operations to 81% as trucker strike ends

Operating rates at South Korea's naphtha-fed steam crackers were recovering after truck drivers ended an eight-day strike late June 14, but remained curbed by poor downstream margins for olefin products, market sources said June 17.

The country's cracker run rates rose to average 80.63% June 16 from 75.56% on June 14, but have yet to recover to earlier planned levels for June of around 83.83%, cracker operation data collated by S&P Global Commodity Insights showed.

The recovery in operating levels was limited by the time it would take to ramp up polymer manufacturing facilities and reduce tank top issues. Ethylene trading sentiment was also weak as both ethylene-naphtha and polyethylene-naphtha spreads remain in negative territory.

"We still see weak demand for ethylene for July. Bids for July cargoes are below $1,000/mt CFR Northeast Asia, which is not workable for us as producers at all," a South Korean producer said. "We need to increase our run rates because we have some naphtha we need to consume and some term contracts to fulfil, but there is no availability of spot ethylene [in Korea]," the source added.

Supply of July ethylene exceeds demand, with cargoes seen from Japan and Taiwan, several market sources said. Weak derivative markets that curbed the buying of ethylene, and margins for production of key downstream products PE, MEG and SM that remained negative, have reduced spot ethylene procurement, buyers said.

With buying appetite likely to remain tepid, South Korean producers are expected to keep operating rates below capacity given the squeezed spreads between ethylene and naphtha.

The spread between CFR Northeast Asia ethylene and CFR Japan naphtha physical was down $7.625/mt day on day at $211.25/mt at the June 16 Asian close, below the typical breakeven spread for non-integrated producers of $350/mt and integrated producers of $250/mt, S&P Global data showed.

In the derivative downstream segment, the HDPE film CFR Far East Asia spread to C+F Japan naphtha was down $7.625/mt on the day at $321.25/mt June 16, below the typical breakeven spread of $450/mt, S&P Global data showed.

Naphtha buying activity was muted as supply was ample amid the lowered run rates across steam crackers in Asia.

Reflecting the weak naphtha demand, the cash differential for spot paraffinic naphtha parcels was assessed at minus $10.25/mt at the June 16 Asian close, down $1.75/mt week on week, against benchmark Mean of Platts Japan naphtha physical on a CFR Japan basis, S&P Global data showed.

South Korea naphtha-fed steam cracker operations

Data from: Producers, market sources