LG Chem’s No. 2 naphtha cracking center at the Yeosu National Industrial Complex in South Jeolla Province, South Korea, officially resumed production on October 12, 2026. The plant has an annual ethylene capacity of 800,000 tons and an annual propylene capacity of 400,000 tons. Its 2024 sales were KRW 2.49 trillion, accounting for about 5.09% of LG Chem’s consolidated revenue that year.
Naphtha Supply Cutoff Keeps Plant Offline for More Than Six Months
The U.S.-Iran conflict disrupted passage through the Strait of Hormuz, causing prolonged disruption to naphtha supplies, and the plant had been offline since March 23, 2026. In the same period, YNCC, South Korea’s largest ethylene producer, also declared force majeure on some products due to naphtha shortages. South Korea’s Ministry of Trade, Industry and Energy banned all naphtha exports from March 27 for a provisional period of five months, prioritizing feedstock supplies for domestic petrochemical companies.
Feedstock Procurement Resumes, Restart Conditions Met
In early September, LG Chem purchased naphtha cargoes for October delivery at Yeosu and Daesan at a premium of $17–18 per ton over CFR Japan quotes. In early October, the company again tendered to purchase open-spec naphtha cargoes for delivery in the first and second halves of November, with feedstock procurement channels having returned to normal.
Weak Demand Keeps Plant Load Constrained
Downstream demand pressure has not eased in tandem. Naphtha prices in Northeast Asia remain elevated, and downstream demand is weak. Naphtha cracker operating rates in China and Japan are both at low levels of around 70%, leaving LG Chem’s post-restart plant load and profitability still subject to external constraints.
Short-Term Restart and Long-Term Capacity Reduction Proceed in Parallel
While disclosing the restart plan, LG Chem said the restart does not conflict with the South Korean government’s policy of production cuts and restructuring in the petrochemical industry. It is a response to short-term supply-demand disruptions caused by geopolitical conflict in the Middle East, and addressing overcapacity remains a more urgent long-term task.
South Korea and Japan will together cut about 5 million to 6 million tons of ethylene capacity, but relative to Asia’s total annual capacity of 110 million to 130 million tons, this will have limited effect in alleviating oversupply.
Petrochemical Business Turns to Loss, Q4 Loss Widens
LG Chem’s petrochemical business had already fallen into loss before the restart. It posted operating profit of KRW 165 billion in Q1 and KRW 427 billion in Q2, and is expected to swing to an operating loss of KRW 150 billion in Q3, widening to KRW 179 billion in Q4, attributed to three pressures: rising naphtha and freight costs, a stronger won, and persistent global ethylene oversupply.
In 2027, global ethylene capacity will increase from 243.9 million tons/year in 2026 to 251.3 million tons/year, with growth continuing to outpace demand growth. The global operating rate will remain around 81%. A large share of the new capacity will come from China, with continued additions in North America and the Middle East.
No. 1 Plant Maintenance Imminent, No. 2 Restarted Ahead of Schedule
While restarting the No. 2 plant, LG Chem’s No. 1 plant, with annual capacity of 1.2 million tons, is about to enter planned maintenance. The company said one purpose of restarting No. 2 ahead of schedule is to maintain operational continuity during the No. 1 plant’s maintenance and avoid a capacity gap.
The restart of the Yeosu No. 2 plant has eased short-term supply disruptions, but the structural challenges facing South Korea’s petrochemical industry—including overcapacity, high costs, and sustained competitive pressure from new capacity in China—have not changed because of one plant’s return to production.
