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August 1, 2017

Volume 7 Issue 4

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S-Oil, SK Profits Underwhelm

South Korea’s S-Oil and SK Lubricants each increased lubricants sales in its second quarter, but neither achieved significant growth in operating income – recording a 1 percent increase and 9.8 percent decrease, respectively.

S-Oil said in an earnings report last week that operating income for its lubricants segment inched up 1 percent to 129.4 billion won (approximately U.S. $115.5 million) from 128 billion won in the same quarter last year. Revenue climbed 17.3 percent to just shy of 406 billion won compared to nearly 346 billion won last year.

S-Oil’s strong sales performance is due to higher margins, said Goh Gwangchol, 
the firm’s investor relations team lead. “It’s attributable to a hike in the lube base oil spread, which was mainly driven by the maintenance of major players and strong seasonal demand.” The spread between API Group I 150 neutral base stock and 380 centiStoke high sulfur fuel oil was $284 per metric ton during the second quarter, around 39 percent higher than the same period last year, according to the Seoul-based refiner.

“The lucrative base oil spread is likely to remain intact,” through the second half of the year, he continued. “The firm demand for high-quality product is expected to drive a solid spread amid limited capacity additions.”

Fellow Korean refiner SK Innovation’s lubricants segment operating profit dropped by 9.8 percent to 120 billion won, from 133 billion won a year ago. Sales increased nearly 16 percent to around 757 billion won, from 653 billion won the previous year.

“In the second quarter, the base oil spread continued to trend upward, owing to the coming of the high season and a supply decrease from the Middle East and other regions,” SK Innovation Chief Financial Officer Cha Jin-seok said in an earnings report conference call last week.

Looking ahead to the third quarter, he noted that the company “expects demand growth to be solid and base oil spread to remain strong, driven by stabilizing oil prices. New Group II and III capacity additions scheduled for the end of the year will have limited impact on the base oil spread, as the demand for premium base oil continues to grow more than 4 percent annually.”