Japanese Ethylene Producers Face Production Halt Risk Due to Logistics Disruption

Ethylene, known as the "mother of the chemical industry," is experiencing an unprecedented supply chain earthquake in both its market and maritime transport. The ongoing conflict, through the dual impact of "physical production capacity interruption" and "logistics route blockage," is reshaping the global chemical trade landscape.

According to a Nikkei Asia report on March 7, Idemitsu Kosan, a major Japanese petrochemical company, has notified its business partners that it may suspend ethylene production in Japan if the blockade of the Strait of Hormuz continues and hinders raw material imports from the Middle East.

The plants at risk of shutdown are the Tokuyama plant in Yamaguchi Prefecture and the Chiba plant in Chiba Prefecture, with annual production capacities of approximately 620,000 tons and 370,000 tons respectively. Together, they account for about 16% of Japan's total ethylene production.

According to the report, Idemitsu Kosan's Chiba plant simultaneously refines crude oil and uses naphtha obtained from this process along with imported naphtha to produce ethylene. The Tokuyama plant relies on imported naphtha for ethylene production.

Japan's crude oil reserves can last approximately 250 days, but its naphtha reserves are only sufficient for about 20 days.

Japan has a total of 12 ethylene production plants with a combined annual capacity of approximately 6.16 million tons. These facilities are operated by various refining companies and petrochemical firms.

Nikkei Asia reports that companies have varying degrees of dependence on imported naphtha, particularly from the Middle East. If tensions in the Persian Gulf region persist, other ethylene producers may need to reduce or halt production.

Mitsui Chemicals, which operates two plants in Chiba Prefecture and Osaka Prefecture, stated that it is studying how long its naphtha supply can last. Meanwhile, the company is also considering procuring more naphtha from sources outside the Middle East, including within Japan.

Maruzen Petrochemical, part of the Cosmo Energy Holdings group, has facilities in Chiba Prefecture. A company representative stated: "We do not expect production to be affected until March, and we are studying ways to ensure stable supply."

Due to limited naphtha supply from the Middle East, some companies are invoking so-called "force majeure clauses," seeking exemption from supply obligations based on factors beyond their control.

Chandra Asri Pacific, Indonesia's largest chemical company, announced on March 3 that it had declared force majeure for its domestic petrochemical facilities.

PCS, a Singapore-based ethylene producer, also declared force majeure on March 5. Approximately half of the company's naphtha comes from the Middle East.

The ethylene market amid the Middle East conflict is facing the dual dilemma of "production suspension" and "export blockade." Approximately 15% of global ethylene supply is directly affected, while capacity loss due to rerouting around the Cape of Good Hope and war risk premiums have made transportation costs for remaining products extremely expensive.

Following the disruption in the Middle East ethylene market, the United States is the only player capable of stepping in to fill the gap as a "firefighter," China serves as a "stabilizer" for regional markets, while Japan, South Korea, and Southeast Asia, unable to protect themselves due to raw material supply interruptions, may transition from suppliers to demand-side players.

This geopolitical storm has not only driven up chemical prices but also exposed the vulnerability of global supply chains, forcing buyers worldwide to reassess supply chain security and diversification strategies.