U.S. President Donald Trump’s phone call with Russian President Vladimir Putin to discuss a potential ceasefire in Ukraine has drawn attention to its impact on the global petrochemical industry. China has been importing Russian crude oil and naphtha at low prices amid sanctions on Russia, worsening the global petrochemical market. If a ceasefire is reached, South Korea’s petrochemical industry is expected to regain its cost competitiveness.

China Imports Russian Crude Oil at Up to 26% Discount

Trump recently spoke with Putin over the phone to discuss ways to end the war in Ukraine.

During his presidential campaign, Trump pledged to end the war within 24 hours of taking office. Since assuming the presidency, he has consistently expressed his determination to achieve a ceasefire, stating that serious discussions were underway and that efforts were being made to bring the war to an end.

 Russia’s economic sanctions after the war began led the country to turn to China as its main oil buyer. China acquired Russian crude oil at lower prices using a “dark fleet” of covertly operated ships. The industry estimates that China has imported Russian crude at $10 to $20 lower per barrel than Dubai crude. Considering that Dubai crude was priced at $77 per barrel on Monday, China is estimated to have secured Russian oil at up to a 26% discount. Russian naphtha was also acquired at a 5-10% lower cost.

 Thanks to its access to cheap crude oil, China has gained a significant cost advantage in the petrochemical sector. Additionally, the country has aggressively expanded its domestic production capacity over the years, further driving down prices. According to the Korea International Trade Association, China’s annual ethylene production capacity is projected to reach 60.07 million tons this year, nearly doubling from 32.18 million tons in 2020.

 The problem is that China’s imports of cheap Russian crude have dragged down global market conditions. The slowdown in demand due to the global economic downturn has further accelerated market deterioration.

 Due to China’s influence, South Korean petrochemical companies have suffered severe financial losses. Last year, LG Chem’s petrochemical division recorded an operating loss of approximately 136 billion won ($93 million). Lotte Chemical’s fundamental chemicals division and Hanwha Solutions’ chemical division reported losses of 809.6 billion won ($557 million) and 121.3 billion won ($83 million), respectively.

Post-Ceasefire: South Korea’s Petrochemical Industry to Regain Cost Competitiveness

South Korea’s petrochemical industry is optimistic about Trump’s diplomatic policies. If the Russia-Ukraine war ends, the market downturn led by China is expected to subside. South Korea and China had little difference in cost competitiveness in the past, as both countries relied entirely on crude oil imports.

 If sanctions on Russia are lifted, South Korea could also resume importing Russian naphtha. Before the war, Russia was South Korea’s 10th-largest trading partner as of 2021, and naphtha accounted for 25.3% of South Korea’s imports from Russia at the time.

 Yoon Jae Sung, a researcher at Hana Securities, stated, “Trump is using the prospect of easing economic sanctions as a bargaining chip for a ceasefire agreement with Russia. Trump’s diplomatic policy changes would weaken the competitive edge of China’s oil and petrochemical industries.”

 However, it is too early to expect a complete recovery of the petrochemical market. China’s years of aggressive expansion have resulted in excess supply, surpassing demand. Additionally, Middle Eastern countries, leveraging their cost advantage, are expanding into the petrochemical industry, posing further challenges.

 An industry official explained, “Once sanctions on Russia are lifted, China will have no choice but to raise its selling prices. However, unless weak demand recovers, it will be difficult for South Korean companies to profit immediately.”

U.S. President Donald Trump’s phone call with Russian President Vladimir Putin to discuss …

Trump-Putin Ceasefire Talks Could Restore South Korea’s Petrochemical Edge Amid Global Market Struggles