Hanwha Total's declaration of force majeure on paraxylene (PX) supply is an extension of the Strait of Hormuz blockade and crude oil-naphtha supply crisis triggered by Middle East conflicts.
PX is produced by separating mixed xylene obtained from converting naphtha. Unlike other petrochemical companies that receive naphtha from refiners or import it, Hanwha Total directly imports condensate and produces naphtha at its own condensate fractionation unit (CFU). The condensate essential for Hanwha Total's PX production has become difficult to bring into Korea as the Middle East-originated raw material supply crisis has prolonged. While Hanwha Total mixes some Australian condensate, most of its supply comes from the Middle East.
The company maintains that the immediate impact on the domestic market will be limited since most of its production is exported to China and other overseas markets. However, industry observers are closely monitoring the situation, noting that this force majeure declaration could deepen supply instability within the Asian region.
S-Oil (1.85 million tons), a PX producer, has lowered its facility utilization rate for scheduled maintenance. Ulsan Aromatics (1 million tons), a joint venture between SK Geo Centric and Japan's ENEOS, cannot operate its plant due to the impact of ENEOS's force majeure declaration in March. In China, Qingdao Lidong Chemical (1 million tons), Sinopec Jinling (600,000 tons), and Formosa Chemical (910,000 tons) have successively entered scheduled maintenance, creating overlapping supply gaps across the Asian region.
According to the Korea Petrochemical Industry Association, Korea produced 7.377 million tons of PX last year, of which 4.939 million tons were exported. Since companies either consume remaining volumes internally for other product manufacturing or sell them domestically after export, production and supply gaps will inevitably affect the domestic market.
PX is a key raw material for purified terephthalic acid (PTA). PTA is converted into polyester fiber and polyethylene terephthalate (PET), which are widely used in products ranging from clothing to beverage bottles, food packaging, and automotive interior films. A PX supply disruption could create cascading effects across these consumer goods supply chains.
With naphtha cracker (NCC) plant operations already reduced due to naphtha supply shortages, polyethylene (PE) and polypropylene (PP) shortages—the raw materials for vinyl—have already materialized. This could become an additional trigger for consumer goods price increases. Packaging material costs have risen 20-30% this month due to PE and PP shortages, with some raw materials increasing up to 50% year-on-year. Thirteen organizations including the Korea Food Industry Association recently appealed that "disruptions are occurring in securing major packaging materials such as vinyl, film, and PET containers, with inventory for some items falling to approximately two weeks' worth."
The naphtha shortage has already impacted other domestic petrochemical companies. Following the naphtha supply crisis after the US-Iran conflict, Yeochun NCC declared force majeure on April 4, followed by Lotte Chemical, LG Chem, and Hanwha Solutions successively notifying customers of potential supply disruptions. LG Chem halted operations at its No. 2 NCC plant in the Yeosu industrial complex at the end of last month, while Lotte Chemical moved up its scheduled maintenance.
Supply chain instability is also deteriorating domestic petrochemical companies' credit ratings and performance. NICE Investors Service noted in a recent report that "Hanwha Total's standalone gross profit turned to a loss of 217.4 billion won ($160 million) last year," adding that "although discussions on production cuts and integration with LG Chem's Daesan plant are underway, visibility on concrete implementation plans remains low."
Other petrochemical companies face similar challenges. According to financial data provider FnGuide, the consensus for LG Chem's first-quarter operating loss is 189 billion won ($139 million), with the deficit expected to widen 1,659% year-on-year. Lotte Chemical is also expected to post an operating loss of 195.6 billion won ($144 million), with the deficit trend continuing since 2022 likely to persist this year.
Korea Ratings stated that "if additional production halts occur when profitability has already deteriorated due to industry downturns, there are concerns that fixed cost burdens and downward pressure on profitability could be compounded by working capital and liquidity pressures."
