Caixin News, March 17th — Despite market discussions about potential crude oil shortages, Japan's industrial supply chain faces a more immediate impact involving a lesser-known petroleum byproduct: naphtha. According to reports, several Japanese petrochemical companies have recently announced production cuts, citing concerns that the Middle East conflict will tighten the supply of naphtha, a key raw material for plastic production. Signs of these reductions indicate that the escalating crisis could drag down output and put pressure on profits across multiple industries, from food to technology.

Naphtha, derived from crude oil, has a wide range of applications, from plastic bottles to construction materials and electrical equipment. It can also be further processed into gasoline. Mateen Chaudhry, founder and managing director of business consulting firm BCMG, stated, "The market hasn’t truly grasped the ripple effects of a naphtha supply disruption. This could be a precursor, and unfortunately, Japan is highly exposed."

Data from the Japan Petrochemical Industry Association shows that Japan relies on overseas sources for about 60% of its naphtha, with over 70% of that coming from the Middle East. This makes Japan highly sensitive to disruptions in shipping through the Strait of Hormuz. Since the outbreak of the Iran war, shipping interruptions have driven naphtha prices up by approximately 66%.