Japan's steam crackers are poised to see a moderate recovery in run rates from June, industry sources told Argus on the sidelines of the Asia Petrochemical Industry Conference (APIC).
The recovery is expected as crackers secure alternative feedstock supplies, but poor margins and high feedstock prices may cap any production increase.
Japan's cracker run rates averaged 67.3pc in April, down from 78.6pc a month earlier and from 68.8pc in March 2026, according to the Japan Petrochemical Industry Association (JPCA). The steep monthly decline was partly triggered by concerns about naphtha supplies, because of the closure of the strait of Hormuz, as well as turnarounds at several crackers. Naphtha imports from the Middle East typically account for roughly 40pc of Japan's demand, domestic supplies account for 40pc and imports from countries other than the Middle East make up the remaining 20pc, according to data from the Japanese government.
In response to the lack of Middle Eastern naphtha, Japanese buyers have sought alternative supplies from Algeria, the US and India. Including supplies from domestic refining, naphtha procurement is currently able to meet over 80pc of Japan's requirements, prime minister Sanae Takaichi said on 25 May. Japan can continue to produce naphtha derivatives beyond the end of this year if it uses its intermediate inventories and allocates feedstocks to midstream products with lower stock levels, she said.
Refinery run rates are recovering in Japan, data from the Petroleum Association of Japan (PAJ) show. Nationwide average refinery run rates were at 73.5pc in the week of 17 May, up from 69.6pc in late April.
But even with improved feedstock supply, market participants said during the conference the recovery in cracker operating rates will probably be limited. The constraint on production has shifted from feedstock availability to weak production economics and subdued demand.
According to the most recent Argus assessment, on 21 May, northeast Asian naphtha-based ethylene cracking margins have collapsed to -$514/t, a sharp deterioration from -$285/t in late-February. This is due to is the inability of producers to fully pass on higher feedstock costs, alongside with weak downstream demand, particularly in China.
Cfr Japan naphtha prices were around 58pc higher on 21 May than pre-war levels. Prices for cfr northeast Asia ethylene increased by about 50pc in the same period, while Asian polymer prices only increased by around 30pc. This mismatch in cost-push inflation and product price realisation has severely compressed, and in many cases eliminated, producer margins.
"The focus is now squarely on profitability," a market expert in a Japanese trading house noted on the sidelines of APIC. "Even with more naphtha arriving, cracker operators have little incentive to ramp up production significantly if they are losing money. The modest increase in runs will be managed very carefully against actual demand and margin recovery."
The industry's path forward now hinges on whether downstream demand and prices can strengthen sufficiently to absorb the elevated cost of feedstocks, allowing for a more substantial and sustainable recovery in operating rates.
The conference, which is held in western Japan, Fukuoka, ends on 29 May.
