South Korean Chemical Giant LG Chem Restarts Yeosu Naphtha Cracker After Six-Month Shutdown

South Korea's largest chemical producer, LG Chem, is bringing its No. 2 naphtha cracking center (NCC) in the Yeosu National Industrial Complex back on line from October 12, 2026, ending an outage of more than six months triggered by the naphtha shortage that followed the war with Iran. The company set the restart date in a regulatory filing submitted on October 8, while stressing that it intends to run the plant steadily as long as feedstock supplies remain stable.

The Yeosu No. 2 cracker is a relatively recent unit that entered commercial operation in 2021. It can produce roughly 800,000 tonnes of ethylene and more than 400,000 tonnes of propylene per year, two basic building blocks that are sent to downstream units to make polyethylene (PE) and polypropylene (PP). According to the company, the unit generates annual sales of about 2.49 trillion won, or 5.09% of LG Chem's total revenue.

The disruption began when US and Israeli airstrikes on Iran in late February 2026 led to the effective closure of the Strait of Hormuz. South Korea is one of the world's largest naphtha importers. Imports cover about 45% of its domestic naphtha demand, and around 77% of those imports came from the Middle East before the conflict. Asian crackers quickly cut their run rates, and in early March LG Chem announced it would lower operating rates to a minimum of 60% at its naphtha-fed crackers in Yeosu and Daesan. Neighboring producer Yeochun NCC declared force majeure on March 4, and GS Caltex also reduced the utilization of its Yeosu cracker.

On March 23, LG Chem told regulators it had temporarily shut the No. 2 cracker because it could no longer secure enough naphtha. At the time, the company was sourcing about half of its feedstock from local refiner GS Caltex and importing the rest. It chose to concentrate the available naphtha on its larger No. 1 cracker in Yeosu, which has a capacity of about 1.2 million tonnes of ethylene per year and kept running throughout the crisis. The same day, the South Korean government designated naphtha as an economic security item, giving it powers to manage supply and distribution.

The shutdown sparked fears of a domino effect across the Yeosu complex, the country's largest petrochemical hub. Lotte Chemical halted all production at its Yeosu plant on March 27 by bringing forward scheduled maintenance, with a restart planned at the end of May. Seoul imposed a ban on naphtha exports from March 27, redirecting about 11% of domestically produced naphtha to local buyers, and introduced penalties against hoarding. The shortage spread to consumer goods, and at one point South Korea faced shortages of pay-by-volume garbage bags and medical IV solution bags, while shipbuilders and home appliance makers also reported pressure on supplies of plastic and resin materials.

The long outage cut a key source of ethylene and propylene for the domestic market. Downstream polyolefin plants had less feedstock to process, and the impact rippled through to plastics, film and packaging manufacturers. Asian naphtha prices rose by around 60% after the start of the war, raising costs for all cracker operators that remained in service.

Supply conditions started to ease over the summer. By late June, the government was reviewing whether to lift the naphtha export restrictions before their planned expiry at the end of August. In July, LG Chem purchased 27,000 tonnes of Russian naphtha, the first Russian cargo bought by a South Korean company in four years, as buyers looked for alternatives to Gulf supplies. Gulf producers also found a workaround. The United Arab Emirates and Kuwait exported about 1.6 million tonnes of naphtha to Asia in August and September through ship-to-ship transfers carried out off Sohar, Oman, outside the Strait of Hormuz. Cracker utilization rates in South Korea and Japan climbed above 70% over those two months, compared with about 68% in March and April.

Even so, LG Chem was still not ready to restart the No. 2 unit in late August, when it said it would only decide on future operations after assessing the stability of raw material supplies. The October 8 filing marked the end of that waiting period, although the company kept a cautious tone and said it would act quickly to limit any further impact on production and sales.

The restart does not mean that the underlying crisis has been resolved. The Strait of Hormuz remains heavily disrupted. Data from IMF PortWatch recorded only 4 transits on October 4, against a pre-crisis average of about 85 per day, and nearly 20 commercial vessels, mostly tankers, have been attacked in and around the strait over the past month. Brent crude was trading at around 101 dollars per barrel in early October. Any new escalation could once again squeeze naphtha deliveries to South Korean crackers that still depend largely on Middle Eastern feedstock.

The financial outlook for LG Chem's petrochemical business also remains weak. In an analysis published on October 9, industry intelligence provider ICIS said global overcapacity, falling profitability and legal uncertainties would continue to weigh on the company's chemicals business until 2027, with better results in its battery business only partly offsetting the pressure. In a note dated October 8, Nomura Securities projected that global ethylene capacity would grow from 243.9 million tonnes per year in 2026 to 251.3 million tonnes per year in 2027, mostly driven by new plants in China, North America and the Middle East, keeping global utilization rates near 81%.

Nomura analysts expect LG Chem to post an overall operating loss in the second half of 2026, citing higher naphtha and freight costs, the appreciation of the won and persistent global oversupply. The brokerage forecasts that the petrochemical segment, which earned an operating profit of 165 billion won in the first quarter and 427 billion won in the second quarter, will swing to a loss of about 150 billion won in the third quarter and 179 billion won in the fourth quarter.

The restart also comes as South Korea pushes ahead with a government-led plan to cut between 2.7 and 3.7 million tonnes of naphtha cracking capacity to address chronic oversupply. LG Chem and GS Caltex had proposed creating a joint venture to integrate their Yeosu cracking operations, but the two companies have not yet submitted a final restructuring plan, which leaves the long-term future of the Yeosu No. 2 cracker uncertain even as it returns to service.