APIC Special Report 2026
S&P Global Energy
APIC 2026: Emerging stronger
Chemicals pivot from market shocks to strategic resilience
S&P Global Energy special report examines Japan’s shift to high-value chemicals, Middle East conflict's impact on Asian petrochemicals and strategies to build resilience and thrive amid disruption.
Asian cracker margins hit by oversupply
Asia’s naphtha-fed steam cracker rationalization is expected to persist into 2027, with most shutdowns planned from late 2026 onward. Japan leads the region, with over 25% of ethylene capacity set for removal through three units by 2028 and one by 2030. South Korea targets a 20%–28% reduction, driven by margin pressure and feedstock realignment.
Japan leads Asia in specialty chemicals growth
Japan’s petrochemical industry is undergoing a strategic transformation due to overcapacity across Asia and, more recently, disruptions in feedstock naphtha supply resulting from the conflict in the Middle East, both of which have affected production.
Once the front-runner in large-scale commodity chemicals, Japanese producers have experienced weaker margins and have undertaken cracker rationalizations in response to intensified price competition and significant capacity expansions in Asia.
As the country’s petrochemical industry seeks opportunities in the high-value specialty chemicals sector, Japan is expected to reduce polyolefin and aromatic exports due to domestic rationalization, while continuing to focus on the development and expansion of its sustainable and specialty chemicals segments.
Rationalization and restructuring
Japan's naphtha-fed steam crackers have been operating below full capacity since 2022 due to negative margins, with yields falling to a record low of 68.6% in March, from 75.7% in February and 75.1% a year earlier, according to the latest data from the Japan Petrochemical Industry Association.
With profit margins receding, several cracker rationalizations are underway, with Japan expected to reduce ethylene capacity by nearly 2 million metric tons/year and propylene capacity by 1.2 million mt/y by 2031.
“Our projections indicate a decline in benzene extraction from naphtha-fed ethylene crackers in Eastern Asia (excluding China), driven by slim production margins and industry rationalization,” said Eshwar Yennigalla, senior principal analyst for aromatics at S&P Global Energy CERA.
“After reaching a peak of 4.2 million mt in 2021, we anticipate a reduction of about 1 million mt by 2030 as rationalization efforts continue across the olefins sector,” Yennigalla said.
Aromatics demand slowing
Japan has historically been a major supplier of aromatics in Northeast Asia, exporting benzene, paraxylene and other products to China, the region’s key demand hub. However, its role as a leading producer is gradually diminishing due to declining cost competitiveness and rapid capacity expansions in China.
Data from S&P Global Energy show that Japan’s benzene exports totaled 663,364 mt in 2025, representing a decline of more than 25% from 2016, when outflows amounted to 888,055 mt.
Notably, China -- the world’s largest demand center for aromatics -- has made significant investments in crude oil-to-chemicals projects over the years to boost self-sufficiency. This move has heightened price competition and decreased import demand for Japanese aromatics.
China’s increasing self-sufficiency and declining reliance on imports are not only impacting the aromatics market but also posing considerable risks to Japanese producers of downstream derivatives.
With domestic demand in Japan slowing and profitability pressures mounting, the industry has been compelled to close uncompetitive units, thereby reshaping the regional landscape.
Adding to these challenges, the Middle East conflict has further disrupted Japan’s aromatics production, given the country’s heavy reliance on Middle Eastern feedstock. Naphtha supply disruptions have constrained operating rates since the onset of the conflict, prompting suppliers to adjust delivery schedules or declare force majeure.
“Japan’s import reliance on Middle Eastern crude and naphtha supplies is very high ... the main priority is still to get as much feedstock as possible, while maintaining low run rates for now,” a trader based in Southeast Asia said.
Olefins and polymer dynamics
In the polyolefins sector, ongoing rationalization, combined with rapid capacity expansions in China, is expected to drive increased imports into Japan.
“For commodity polyethylene and polypropylene grades, we will see Japan importing more as there are no global supply issues,” said Feng Shaohua, director for Asia polymers news and research management at CERA.
600,000 mt
approximate ethylene trade surplus maintained by Japan in 2025
Japan became a net high-density polyethylene importer after 2021. According to S&P Global Energy data, HDPE imports increased to 204,897 mt in 2025, from 176,226 mt in 2021, while HDPE exports over the same period fell to 154,489 mt from 191,287 mt.
Japan remained a net exporter of ethylene and propylene in 2025 despite declining cracker rates. The trade surplus for ethylene was nearly 600,000 mt during the year, while the surplus for propylene was 500,000 mt, Japan Customs data show.
Going forward, the country is expected to maintain its net export status for these two products, due to increasing rationalization and declining domestic consumption of downstream polyolefins.
Specialty chemicals strategy
Amid intense global competition, Japanese producers are increasingly shifting their focus to specialty chemicals, which offer greater resilience against price pressures stemming from economies of scale. These high-performance products have become essential for sustaining competitiveness and expanding market share.
Supported by progressive government legislation, Japan has established itself as Asia’s leader in chemical recycling and plastic waste management, fueled by its advanced infrastructure and innovative, commercialized recycling technologies -- areas in which many of its Asian counterparts remain in the early stages of development.
“The polyolefins industry is interesting as, apart from competing with volume, producers can also compete with technology by differentiating their products, such as by producing specialty metallocene and polyolefin grades,” Feng said, adding that Japanese producers are renowned for their technological and application expertise.
Key products include ethylene vinyl alcohol and cyclo-olefin copolymer. As of 2023, Japanese companies such as Kuraray and Mitsubishi, along with their manufacturing facilities in the US and Western Europe, accounted for about 95% of global EVOH production capacity, according to S&P Global Energy data.
The polyolefins industry is interesting as, apart from competing with volume, producers can also compete with technology by differentiating their products, such as by producing specialty metallocene and polyolefin grades
Feng Shaohua, director, CERA Asia polymers news and research management, S&P Global Energy
On April 21, Japan’s Ministry of Economy, Trade and Industry announced plans to invest $6.28 billion in metals and plastics recycling by 2030.
The country is also actively expanding its capacity for processing mixed plastic waste. For example, chemical recycler CFP Group plans to launch a new 10 mt/d facility in Okayama in April 2027 that will produce pyrolysis oil, a feedstock for steam cracking.
Chemical Recycle Japan Co.’s 20,000 mt/y pyrolysis-based waste plastic recycling facility in Chiba is scheduled to begin commercial operations in April 2027. The company is a joint venture between Idemitsu Kosan Co. and Fukuyama-based Environment Energy Co. Idemitsu has stated that it plans to use pyrolysis oil as feedstock to produce circular chemicals using mass-balance accounting.
In the recycled polymers sector, Japan’s advanced chemical recycling technology has gained international recognition and adoption. JEPLAN has established strategic partnerships in countries such as the UAE and France. In the UAE, JEPLAN’s polyethylene terephthalate recycling technology, BRING, is being utilized to develop a recycled PET supply chain, with plans underway for a new recycling plant.
“With shrinking domestic consumption and an aging population, we will see Japan continue to focus on specialty chemicals and the recycled space to stay competitive,” Feng said.
Contributors: Charlene Goh, Fumiko Dobashi, Heng Hou Cheong, Mainak Moitra, Sophia Yao, Stuti Chawla, Su Yeen Cheong, Sunaina Kura, Thiam Hock Tan, Zachary Ooi, Zhi Yi Tan, Zi Nin Tan
Editors: Ankit Ajmera, Rizwan Choudhury, Ribhu Ranjan, Sivassanggari Tamil selvam
Design: Energy Content Design
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