As Naphtha prices continue to soar, the Global Petrochemical Industries ponder upon alternatives

Petrochemical industries are forced to reduce their operating rates or switch to other fuels due to the skyrocketing prices of naphtha owing to highly volatile trend of upstream crude oil which is worsened by the ongoing Russia-Ukraine war. Naphtha-fed steam crackers have reduced their productions in Asia since last quarter of 2021 and most of their production have reduced to 70%, since the turmoil caused by the current geopolitical situation doesn’t seem to resolve soon, so it will likely led to production cuts further downstream.

Since the main feedstock in petrochemical crackers in the US is ethane which is derived from Natural gas unlike Europe and Asia where the industries rely on Naphtha derived from Crude oil, so the downstream products like polyethylene (PE) and polypropylene (PP) in the US didn’t have to reduce production from soaring crude oil price. But in the Asian market it was quite the opposite, PP and PE producers in north Asia have planned to shut down for couple of months since they won’t make money due to the high feedstock prices. “LG” the largest South Korean petrochemical Industry have decided to reduce their production to 80% to handle the situation.

Europe is the highest consumers of downstream plastics and Europe’s petrochemical industry is highly affected from the ongoing war due to their high dependency of Crude oil from Russia. So, most of the European PE and PP manufactures have decided to switch to ethane in order to keep up with the end-use consumer demands, even though the prices of natural is high in Europe it is comparatively cheaper and reliable than upstream crude oil.

According to ChemAnalyst, the state of Naphtha prices is highly dependent on its demand as Feedstock in Petrochemical Industries since the need of downstream PP and PE products are always high in plastic and packaging sector, so now the price trend solely depend on the upstream crude oil which is greatly influenced by the ongoing war between Russia and Ukraine causing an unclear further for Naphtha prices.