South Korea Welcomes Tariff-Free Naphtha and Crude Oil for Petrochemicals

Since the start of the crisis between Ukraine and Russia, South Korean petrochemical manufacturers have found it challenging to obtain inexpensive Russian naphtha, which has resulted in significantly higher feedstock procurement costs, according to South Korean Finance Ministry. On top of the expanding petrochemical production capacity in China, India, and the Middle East that jeopardizes regional downstream businesses.

The country’s finance ministry announced on July 6 2023 that import duties on naphtha and crude oil used to produce naphtha will be eliminated. This will allow local refiners and producers of petrochemicals to obtain feedstock at a reduced price and maintain downstream margins.

The largest importer of naphtha in Asia is South Korea, which before the war bought over 50 million b from Russia annually on average. This decreased to 16 million barrels in 2022 from 57.6 million barrels in 2021, according to data from the Korea National Oil Corp. and the Korea Petrochemical Association.

As part of the government’s continued efforts to reduce excessive inflation, increase consumer demand, and improve the competitiveness of the petrochemicals industry, Seoul will reduce the current 0.5% import tax on naphtha and crude oil for naphtha production to zero, the finance ministry announced in a statement.

The finance ministry further emphasized that as naphtha is a crucial feedstock for ethylene, the primary ingredient in plastics, synthetic fiber, and rubber, the removal of the levy would significantly contribute to lower consumer prices.

Based on data from the government-run KNOC, South Korea imported around 49.5 million barrels of naphtha in the second quarter, 7.2% fewer than the 53.34 million barrels it acquired during the same time period in 2017.

The price spread between CFR Northeast Asia ethylene and CFR Japan naphtha physical, according to analysis by S&P Global, was $251.25/mt at the July 6 Asian close, widening $19.50/mt over the day due to lower naphtha while ethylene remained steady. This was below the average $350/mt breakeven spread for non-integrated producers but had recently risen over the $250/mt breakeven common for integrated producers.

Since late-2021, end-user margins have been largely unfavorable as the ethylene-naphtha spread averaged $207.95/mt from July 2022 to June 2023.

Since an April maintenance, LG Chem, which operates naphtha-fed steam crackers, has shut down its No. 2 plant, which has a capacity of 800,000 mt/year of ethylene and 480,000 mt/year of propylene. This is due to negative market conditions.

In the meantime, refiners and producers of petrochemicals using condensate splitters claimed that the cost of importing deodorized field condensate from Qatar, low sulfur condensate, as well as North West Shelf and Ichthys condensate from Australia, might decrease by $3 to $4/b.


Vahn, Gawoon Philip., Wang Wanda., Lee, Charles. 2023. S&P Global; South Korea removes import tariffs on naphtha, crude oil for petrochemicals feedstock. Retrieved from

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