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May 2, 2017

Volume 7 Issue 4

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Korean Refiners’ Profits Sink despite Revenue

S-Oil and SK Lubricants saw operating income decrease despite increased sales revenue in this year’s first quarter compared to the same period of 2016, according to the companies’ earnings reports released last week.

S-Oil said income fell because the run-up in crude oil prices earlier this year compressed base oil profit margins. The spread between API Group I 150 neutral base stock and 380 centiStoke high sulfur fuel oil was U.S. $211 per metric ton during the first quarter this year, 27 percent lower than the same period last year, officials said.

S-Oil’s base oil business earned 84.1 billion won (U.S. $74.3 million) in operating profit, a 34 percent drop from 127.5 billion won in the first quarter of 2016. The segment’s revenue increased roughly 18 percent to just shy of 385 billion won.

The Seoul-based refiner’s performance was better this quarter than it was in the previous quarter due to the more favorable base oil spread and a recovery in sales volume following a maintenance turnaround, S-Oil’s Gho Gwangchol said during a conference call last week.

In the second quarter, “base oil spread is likely to expand further, driven by firm demand for high-quality products in the United States and Europe ahead of the peak driving season,” the official continued. “What’s more positive is that the planned capacity addition in Hainan province, China, which amounts to 20,000 barrels per day, was deferred to next year.” Hainan Handi Sunshine Petrochemical Co. claimed it will add around 800,000 metric tons per year of Group II and Group III capacity to its 300,000 t/y Group II refinery.

Several refiners around the world plan to expand Group II and III capacity this year, including Slavneft, which is adding 97,000 t/y at its plant in Yaroslavl, and Luberef, which is adding 700,000 t/y of Group II at its plant in Yanbu’al Bahr, Saudi Arabia.

SK Innovation reported that its base oil and lubricants segment increased sales by 17 percent to nearly 729 billion won, but SK Lubricants’ operating profit decreased 28 percent to 95 billion won. 

“Base oil spreads improved quarter on quarter, since demand continued to be strong while supply decreased due to maintenance in the region,” Shin Incheol said during SK’s conference call. “Base oil demand is expected to grow steadily [in the second quarter], which we believe will lead to both a stronger spread and higher base oil prices. Tight supply-demand dynamics will be reflected in sales prices. And sales volume is expected to grow entering into the high season, which is expected to result in better earnings.”