South Korea's LG Chem to declare force majeure on ethylene supply starting Oct

South Korea's LG Chem has declared force majeure on ethylene term shipments from October, as its No. 1 naphtha-fed steam cracker in Yeosu will have to be shut mid-September due to mechanical issues, a company official told S&P Global Commodity Insights on Aug. 3.

The cracker -- with an ethylene capacity of 1,180,000 mt/year and a propylene capacity of 530,000 mt/year -- was originally scheduled to shut from Sept. 23 to Dec. 7 for maintenance.

"The company will do its best to deliver contractual volumes in September," the official said, but added that further deliveries would be affected following the force majeure from October as it was unclear how long it would take to fix the issues at the cracker.

The company could not be immediately reached by S&P Global for official comment.

The duration of the force majeure wasn't clear as the restart date has not been decided yet, said the official, who declined to share the declaration letter sent by the company to its customers informing them about the upcoming force majeure.

The force majeure would affect both domestic South Korean and overseas customers, according to the official. Operating rates at related downstream facilities at both its Yeosu and Daesan sites such as the polyethylene (PE) and ethylene dichloride (EDC) plants have been lowered, in view of reduced run rates at its crackers and the upcoming shutdown at the No. 1 cracker.

Operating rates at all three crackers of LG Chem are currently at 73%, down from 75% the previous month.

"There is no immediate impact on the ethylene market as customers have already planned for lower supply since most crackers in Asia have reduced operating rates. We don't see any increase in inquiries because of the announcement. However, downstream demand is still very weak and it is unclear if the supply cut will support the ethylene market in Q4," said a trader based in Northeast Asia.

Meanwhile, a buyer of LG Chem's ethylene said: "Yes, the FM [force majeure] will definitely affect us as we have regular term volumes from LG. However, we are still discussing our plan for October. We are covered for August and September, so we are not looking for spot volumes right now."

Platts last assessed ethylene at $900/mt CFR Northeast Asia on Aug. 4, unchanged on the day, S&P Global data showed.