Hormuz Crisis Escalates: Chemical Industry on Alert... Companies Notify Customers of Possible Force Majeure

Raw Material Procurement and Maritime Logistics Both Unstable
Supply Chain Risks Escalate Amid High Dependence on the Middle East

As tensions in the Middle East escalate and even the possibility of a blockade of the Strait of Hormuz is being discussed, a growing sense of unease is spreading throughout the domestic petrochemical industry. Some companies are taking preemptive measures against supply chain uncertainties, such as notifying their customers of the possibility of a 'force majeure' event in anticipation of potential disruptions in raw material supply.

LG Chem factory in Seosan, Chungnam. Provided by LG Chem

According to the petrochemical industry on March 11, it has been reported that LG Chem recently conveyed the possibility of a force majeure event to some of its customers. This move is seen as a response to the increased risk of disruptions in raw material procurement and maritime logistics caused by escalating geopolitical risks in the Middle East.

Previously, Yeochun NCC, which operates a naphtha cracking center (NCC), declared force majeure due to difficulties in securing raw materials. Industry insiders believe that LG Chem's latest action is not an actual declaration of force majeure, but rather a prior notice to prepare for potential supply disruptions in the future.

A force majeure declaration is a measure taken to temporarily exempt a company from its supply obligations when the fulfillment of contracts becomes difficult due to external factors beyond its control, such as war or natural disasters. As the situation in the Middle East has recently deteriorated rapidly, maritime transportation of key raw materials like crude oil and naphtha has become increasingly unstable, prompting Korean chemical companies to heighten their response levels.

Within the industry, concerns over securing raw materials are mounting quickly. It has been reported that some companies have even inquired whether they could receive supplies of heavy naphtha exported by certain domestic refiners. Considering that Korean chemical companies typically use light naphtha as their main raw material, this suggests that the raw material supply situation has become exceptionally tight.

Lotte Chemical has also reportedly informed its customers in advance about the possibility of a force majeure event. On March 10, Lotte Chemical is said to have sent an official notice titled 'Notification of Possible Force Majeure Event' to some of its business partners.

Industry experts point out that, due to the domestic petrochemical sector's high dependence on Middle Eastern raw materials, it is inevitably vulnerable to geopolitical shocks. If the situation is prolonged, there are concerns that both a sharp increase in raw material prices and production disruptions could occur simultaneously, further burdening an industry already under pressure to restructure.

An industry official said, "As Middle East risks intensify, uncertainties surrounding both raw material procurement and logistics are increasing. The fact that companies are notifying customers in advance about the possibility of force majeure is a form of risk management to prepare for potential supply disruptions."

Another official explained, "For petrochemical products, contractual compensation issues are highly sensitive, so companies have no other choice but to respond by announcing the possibility of force majeure in advance. If the wartime situation is prolonged, there is a possibility that such measures could spread throughout the entire industry."

This content was produced with the assistance of AI translation services.