COMMODITIES 2026: Asian naphtha faces challenges amid petrochemical restructuring, Russian supply uncertainty

This is part of the COMMODITIES 2026 series, where our reporters bring to you key themes that will drive commodities markets in 2026.

The Asian naphtha market will continue to see pressure from weak petrochemical margins in 2026 amid ongoing capacity rationalization in South Korea, Japan, and China, compounded by uncertainty surrounding Russian naphtha supplies, traders and other market participants told Platts, part of S&P Global Energy.

However, naphtha demand could find some support from the startup of BASF's steam cracker in Zhanjiang expected in early 2026, which would boost naphtha demand, alongside Taiwan's Formosa Petrochemical shifting purchases toward non-Russian cargoes amid heightened scrutiny of Russian-origin supplies, at least three trade sources said.

Capacity rationalization in focus

South Korea's petrochemical restructuring plans will be a key focus among naphtha market participants, as they may add further downside to Asia's naphtha import demand.

The government announced restructuring plans for the petrochemical sector in August, which will likely reduce by 2.7 million-3.7 million metric tons the ethylene capacity of South Korean producers, including petrochemical complexes in Ulsan, Daesan, and Yeosu.

Since then, the government has set a deadline for submitting restructuring plans by December. Companies that submit their plans by the deadline will be eligible for government support, including financial incentives and resources designed to facilitate their transition to a more sustainable and efficient operational model.

The government has received a restructuring plan from petrochemical makers Hyundai Chemical and Lotte Chemical to scale down operations in the Daesan complex.

LG Chem and GS Caltex are in discussions for a potential consolidation of naphtha cracking facilities in Yeosu. The market awaits more details from other South Korean producers.

While some sources said that the remaining crackers could ramp up operations after rationalization, others cautioned that any increase would depend on market conditions. Implementations of the restructuring plans are still in early stages, and timelines are not yet certain, the sources added.

In Japan, naphtha demand remains broadly stable to lower amid poor petrochemical margins and announcements of plant closures, Asian naphtha traders said. The naphtha-fed steam cracker of Maruzen's Chiba unit is scheduled to be shut in 2026-2027. Idemitsu Kosan Co. Ltd. and Mitsui Chemicals, Inc. have decided to consolidate their ethylene production facilities in Chiba, decreasing their combined ethylene production capacity to 550,000 mt/year. Eneos Kawasaki's unit is expected to be decommissioned by 2028, Platts reported earlier.

China's campaign against "involution" in the refining and petrochemical sectors is unlikely to impact petrochemical feedstock demand significantly, S&P Global Energy analysts said in their latest outlook report. While specific plans are pending, it is anticipated that about 6 million mt/year of small, inefficient cracker units (12% of current capacity) will be shut down, with a shift toward specialty chemicals over commodity grades, which are already oversupplied.

The Platts-assessed CFR Northeast Asia ethylene spread to C+F Japan naphtha has averaged $219.07/mt year to date, up from the 2024 average of $204.77/mt but below the typical breakeven spread of $250/mt for integrated producers and $300-$350/mt for non-integrated producers.

Russian supply uncertainty

Increased scrutiny following the US sanctions since October has dampened buyers' interest in Russian supplies, Singapore-based traders said. Asian importers, notably from India, China, and Taiwan, have increasingly avoided Russian cargoes.

This decline in buying interest has partly offset the impact from drone attacks on Russian refineries since August, which have also disrupted production and led to a decline in naphtha exports.

Consequently, higher volumes of arbitrage cargoes from the US and Europe were observed heading to Asia, amid a weaker European market, to compensate for the shortfall in Russian naphtha supply.

Russian supply remains uncertain, despite ongoing peace talks between Russia and Ukraine, at least four Asian trade sources said.

However, the market appears to have sufficient supply, even with reduced Russian naphtha, while additional naphtha supply is expected from Bapco Energies' Sitra refinery following its refinery upgrade, which will increase Bahrain's refining capacity to 405,000 b/d, several trade sources said.

Competitive feedstock

Naphtha as a cracker feedstock is likely to grow at a much slower rate compared to NGLs, according to Aaron Cheong, Associate Director, Asia and Middle East Petrochemical Feedstocks at S&P Global Energy CERA.

In the US, NGL supply is projected to continue increasing with strong oil production and rising gas-to-oil ratios. This excess LPG will need to be sold internationally, which will push prices down and make naphtha less cost-effective as a cracker feedstock, especially in Asia and Western Europe, Cheong said.

Therefore, the East of Suez net naphtha deficit in 2026 is expected to decline amid ample supply in the region, potentially putting additional downward pressure on naphtha markets.