'Nathptha' price rises day after day amid Russia-Ukraine conflict.

Over $90 a barrel... Demand for petrochemical products is also low for the first time since September 2014 ... “It is difficult to improve profits”

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The price of naphtha, the main raw material for petrochemical products, is rising day by day. As Russia, the largest exporter of naphtha to Korea, has recently been in conflict with Ukraine, there is also a forecast that pressure on the price of naphtha may intensify. Petrochemical companies are increasingly concerned as raw material prices continue to rise amid sluggish demand for petrochemical products.

According to Petronet, an oil price information site of Korea National Oil Corporation on the 3rd, the price of naphtha recorded $90.07 per barrel as of the 31st of last month. It is the first time since September 30, 2014 that it has risen to the $90 level. Compared to a year ago, the increase rate is 34.6%. The price of naphtha has been rising since the beginning of last year, except for a brief pause in August of last year. Naphtha, which is extracted by distilling crude oil, is affected by the price of crude oil. As international oil prices continued to rise, naphtha prices also rose.

The recent crisis of Russia's invasion of Ukraine has also arisen. If the invasion of Russia becomes a reality, economic sanctions against Russia by the US and Europe could be imposed. In this case, import and export transactions using dollars will also be suspended. Korea imports a significant amount of naphtha from Russia. According to the National Statistical Portal (KOSIS) of Statistics Korea, out of the total 215.87 million barrels of naphtha imports in 2020, 52.21 million barrels were imported from Russia alone. At about a quarter of the level, it is the largest amount among any single country. The industry believes that if Russian imports are blocked, it will have a significant impact on the rise in naphtha prices.

Naphtha is a key raw material for petrochemical companies and refiners. Petrochemical companies produce petrochemical raw materials such as ethylene and propylene by thermally decomposing naphtha at high temperatures. Refiners add additives to naphtha to make gasoline and sell it. Recently, as refiners have also introduced petrochemical production processes, naphtha has established itself as the main raw material in all industries. As such, naphtha accounts for a large portion of petrochemical products. In the stock market, the profitability of petrochemical companies is sometimes judged by the spread index minus the price of naphtha from petrochemical raw materials.

In addition to rising naphtha prices, demand for petrochemical products in Asia is also declining. It is a double high for a petrochemical company. Petrochemical companies and oil refiners have reduced their plant utilization rates since the end of last year as demand for their products decreased. Demand is not supported enough to offset the surge in naphtha prices. An official from a petrochemical company said, “Purchasing (petrochemical products) in Asia such as China, Vietnam and Malaysia is still low.” Accordingly, it is difficult to be optimistic about the outlook for domestic petrochemical companies this year. Hwang Gyu-won, a researcher at Yuanta Securities, said in a phone call with the Hankyoreh, “With demand recovery for major petrochemical products, even if naphtha prices are strong, we can expect (profit improvement).” “If demand recovery is slow, profits will improve until June this year. This is difficult,” he said.