Asian petchem makers face naphtha disruption as Iran conflict widens

By Mohi Narayan and Heejin Kim

NEW DELHI/SEOUL, March 4 (Reuters) - Petrochemical makers in top producer Asia are preparing to halt operations and trim run rates as Middle East supply chains buckle under the U.S.–Iran conflict, with tanker traffic through the Strait of Hormuz halted and buyers bracing for delays and higher costs.

Indonesia's Chandra Asri TPIA.JK on Tuesday declared force majeure on all contracts while two Japanese buyers, Maruzen Petrochemical and Mitsui Chemical, cancelled second-half April naphtha import tenders, two sources with the knowledge of the matter said.

Both Japanese companies declined to comment.

Asia sources roughly 4 million metric tons (36 million barrels) of Middle East naphtha monthly. Naphtha is the raw material for petrochemicals used in consumer products including paints and plastics.

"Delays linked to rerouting, heightened security protocols, and risk assessments are affecting voyages inside and outside the immediate conflict zone, further tightening logistics and complicating trade flows, adding uncertainty to cargo scheduling and delivery timelines," said Vasudev Balagopal, global head of petrochemical trading at brokerage Marex.

"Some assets in the Asia-Pacific region are adopting a more cautious stance toward future production ... This precautionary approach could weigh on operating rates if disruptions persist."

NAPHTHA MARGIN AT 4-YEAR HIGH

The disruption drove the benchmark naphtha refining margin NAF-SIN-CRK in Asia to four-year high of about $173 per ton over Brent crude on Wednesday.

South Korea's industry ministry said on Tuesday its petrochemical producers are concerned about supply disruption if the Iran situation is prolonged. The country is Asia's top importer of Middle East naphtha, sourcing 54% of its supply via the Strait of Hormuz. Buyers include Lotte Chemical 011170.KS, GS Caltex, LG Chem 051910.KS and SK Energy.

These firms will need to make decisions within the next two weeks whether to source from alternative regions such as the U.S. or South Asia, or cut output, said a South Korean industry source.

Korean refineries which supply naphtha to petrochemical firms, have crude oil stocks to maintain operations for a month, another source said.

The sources declined to be named as they were not authorised to speak to the media.

Getting U.S. supplies will require an additional three weeks for shipping which will be very costly, an executive at a global trading house said.

ALTERNATIVE SUPPLIES

India, which exports surplus naphtha, would need to secure sufficient crude supplies to continue, an Indian exporter said.

However, the South Asian nation is the major oil importing country most vulnerable to crude supply shocks if the Middle East conflict leads to a prolonged disruption in shipments because of its thin reserves.

Some Asian buyers may turn to Russian naphtha in a dire scenario, two Singapore-based traders said.