Escalating Middle East tensions following U.S. and Israeli airstrikes on Iran have dealt a direct blow to South Korea's petrochemical industry. Yeochun NCC became the first domestic company to declare force majeure, signaling supply disruptions after naphtha imports were blocked. Petrochemical firms that rely on Yeochun NCC for basic petroleum products such as ethylene are on high alert over the potential for a prolonged crisis.
According to petrochemical industry sources and foreign media reports on the 6th, Yeochun NCC notified major customers including Hanwha Solutions and DL Chemical of delays and adjustments to product deliveries after the Strait of Hormuz blockade prevented timely naphtha supplies.
A force majeure declaration is a measure to exempt sellers from liability when contract fulfillment becomes impossible due to external factors beyond the parties' control, such as war or natural disasters. Yeochun NCC reportedly made this decision after naphtha imports from Saudi Arabia and other Middle Eastern sources were repeatedly delayed or halted following Iran's drone attacks and the Hormuz Strait blockade. One-quarter of South Korea's naphtha imports pass through the Strait of Hormuz.
Yeochun NCC's major shareholders are Hanwha Solutions and DL Chemical, which also consume much of its output. The company's annual ethylene production capacity reaches 2.285 million tons. As the nation's largest single-company ethylene production base, Yeochun NCC's force majeure declaration due to raw material supply difficulties suggests the Iran crisis is affecting the energy industry across all fronts.
In a letter to customers announcing the force majeure, Yeochun NCC stated: "The rapid escalation of geopolitical tensions in the Middle East has caused severe disruptions to raw material procurement. The arrival of naphtha scheduled for delivery in March has been significantly delayed due to the Strait of Hormuz blockade." The company added that it would operate all production facilities at minimum capacity, indicating plans to lower utilization rates.
The government has reportedly assessed the situation and begun coordinating response measures with industry. A Ministry of Trade, Industry and Energy official said: "This doesn't mean Yeochun NCC cannot supply any volume at all, but lower utilization rates could reduce committed supply quantities. We are reviewing alternative import sources and fuel blending options." The government has determined that no other petrochemical companies besides Yeochun NCC have declared force majeure.
Companies that have received ethylene and other basic materials from Yeochun NCC say they can manage for now using existing inventory. However, the situation could change if the crisis is prolonged. Once stockpiles are depleted, tight naphtha supply in the market would inevitably increase cost burdens.
NICE Investors Service warned: "The petrochemical industry is in a phase of structural oversupply, making it difficult to immediately pass on raw material price increases to product prices. A sharp rise in naphtha prices due to supply disruptions will negatively impact the industry."