South Korea’s overall petroleum product demand saw remarkable growth in October, rising by 0.5% m-o-m and 3.8% y-o-y to an eight-month high of 2.58 mmb/d. Demand growth was largely led by naphtha which surged by 16.1% y-o-y.  Booming petrochemical demand drove naphtha demand to an all-time high of 1.32 mmb/d as high prices rendered LPG an uneconomical feedstock. As such, steam crackers had no alternative but to maximize naphtha consumption. In order to meet the jump in demand, South Korea’s naphtha imports surged by 26% y-o-y to 452.7 kb/d.  In contrast, LPG consumption continued to decline by 12.6% y-o-y to 283 kb/d. We expect the strength in naphtha demand to sustain throughout Q1 2018 as firm winter heating demand underpins LPG prices.

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Fuel oil demand in South Korea plunged by 33.6% y-o-y to 74 kb/d in October as the fuel continues to be backed out by increased nuclear and coal capacity for power generation. However, net fuel oil imports in South Korea grew by 39.9% y-o-y as plummeting production outweighed that of demand. Winter power generation demand and nuclear reactor outages are likely to lend some incremental demand to South Korea’s fuel oil consumption and imports in the coming months. Kowepo and Korea East-West Power recently tendered for a 45kt and 40 kt cargo of high sulfur fuel oil respectively for December delivery, marking their first spot purchases since July.

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