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Analysis: South Korea keeps condensate imports stable in 2020 to support essential chemicals output

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Analysis: South Korea keeps condensate imports stable in 2020 to support essential chemicals output

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Crude imports fall but condensate purchases rise in 2020

Polypropylene, polyethylene seen as essential chemicals during pandemic

Traders to secure adequate condensate, naphtha feedstock supply

Singapore — South Korea has put the brakes on crude oil purchases to date this year amid faltering domestic fuel demand, but Asia's fourth biggest oil consumer is expected to maintain steady imports of condensate to cater to the needs of medical equipment and hygiene product manufacturers during the coronavirus pandemic.

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South Korea has a firm base feedstock requirement for petrochemical products that support medical equipment and chemical manufacturing purposes. This would keep the country's condensate and naphtha demand relatively stable, industry officials and analysts in Seoul told S&P Global Platts in the week started Oct. 11.

South Korea's overall crude oil and other refinery feedstock imports fell 9% year on year at 662.88 million barrels for the first eight months, with imports from Middle Eastern crude producers down 10% over January-August while crude oil shipments from the Americas fell 4%, according to latest data from state-run Korea National Oil Corp.

However, a more in-depth breakdown of the import data showed that South Korea's crude oil imports from Qatar, Australia, Norway and several West African countries have increased this year.

"This is a clear-cut indication that the country's demand for condensate, or ultra-light crude oil, was relatively unscathed by the overall oil demand destruction caused by the coronavirus pandemic," said a senior market research analyst at Korea Petroleum Association in Seoul.

South Korea typically buys its staple condensate grades, including deodorized field condensate, or DFC, low sulfur condensate, or LFC, and North West Shelf from Qatar and Australia to produce naphtha, which is used as a petrochemical feedstock as well as a gasoline blendstock.

South Korea has imported around 48 million barrels of condensate from Qatar and Australia combined in January-August, more than 40 million barrels received during the same period a year earlier.

ESSENTIAL FEEDSTOCK, CHEMICALS

Due to the increased health and infection concerns following the outbreak of the pandemic, demand for certain petrochemical products saw a sharp uptick amid high usage of medical equipment as well as cleaning chemicals and hygiene products, said Jeong Hong Suk, downstream industry and market analyst at state-run Korea Development Bank.

For instance, demand for polypropylene and polyethylene, which are essential for making mask filters and protective medical suits and gears, shot up more than 25% and 5%, respectively, year on year in the first half 2020, according to an official at Korea Petrochemical Industry Association.

As a result, various chemical firms have registered healthy earnings in recent quarters. SKC, for one, reported that second quarter net profit jumped 65% from the first quarter at Won 49 billion ($41.6 million). The company's main product is propylene glycol, which is used for making multiple hygiene products, including hand sanitizers.

Refinery trading managers are looking to secure regular inflows of ultra-light crude for the rest of the year in an effort to maintain adequate supply of condensate and naphtha feedstock to support the essential chemicals and medical material production chain.

South Korea is expected import more than 75 million barrels of condensate from Qatar and Australia for the full year, around 3% to 5% more than 2019, according to South Korean petrochemical and refinery trading managers surveyed by S&P Global Platts.

Asia's biggest ultra-light crude buyer also raised purchases of Norwegian Ormen Lange and Shnovit condensate, as well as Escravos condensate from Nigeria this year.

Price differentials for benchmark condensate grades in the Asian market have staged a strong rebound since tumbling to record lows in Q2. Qatar's DFC was assessed at a discount of$1.20/b to Dubai on Oct. 12, up 87% from the low of Dubai minus $12.50/b in May.