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February 7, 2020

Volume 7 Issue 8

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Tough 2019 for Korean, Most Indian Companies

South Korea’s major base oil refiners – SK Lubricants, S-Oil, GS Caltex, and Hyundai Shell Base Oil – each reported steep declines in operating profit for 2019.  In India, Castrol India Ltd. reported increased profits for 2019, while profits for the year were down for Balmer Lawrie & Co.’s greases and lubricants segment, Savita Oil and MJL Bangladesh Ltd.

SK Lubricants

SK Innovation’s base oil and lubricants segment posted 293.9 billion won (U.S. $247.5 million) in operating profit in 2019, a 36 percent decrease from 460.7 billion won in 2018, the company announced last week. Yearly sales of base oil and lubricant products totaled 2.9 trillion won, down about 12 percent from 3.3 trillion won the previous year.

The segment’s operating profit for the fourth quarter of 2019 was 86.9 billion won, up 17 percent from the same period in 2018. Sales for the fourth quarter reached 699.8 billion won, a 17 percent decrease.

“Lube base oil margins improved with lower feed stock prices,” Lee Myungyoung, treasurer of SK Innovation, said about the company’s fourth quarter in the earnings report conference call. 

Myungyoung expressed concern over a global economic slowdown and oversupply of API Group II base stocks in 2020, but said the Seoul-based company expects the market to gradually improve, given the additional demand for Group III due to stronger emissions regulations in India and China and new low viscosity specifications going into effect in North America and Europe.

S-Oil

S-Oil’s base oil sector posted 219.5 billion won of operating income in 2019, a 14 percent decrease from 255.6 billion won the previous year. Revenue was 1.5 trillion won, down 7 percent from 2018, the Seoul-based refiner said in its earnings report last week.

For the three months ended December 2019, the company recorded operating income of 98.2 billion won, a 109 percent jump from the same period the previous year due to improved base oil spread in the quarter. Quarterly revenue was 403.6 billion won, down 5 percent.

“In the last quarter, lube base oil spread surged as its feed stock [high-sulfur fuel oil] price declined deeply ahead of the implementation of IMO 2020 while product prices were relatively flat quarter-on-quarter,” an S-Oil spokesperson said. “This year the spread could keep solid as demand for high quality product is expected to steadily grow thanks to stricter emission reduction amid new capacity addition lessening in the region.”

For the last two years, the base oil market has been impacted by new capacity additions and stagnating demand.

GS Caltex

GS Caltex posted operating profit of 105 billion won (U.S. $88.6 million) for its base oil and lubricant business in 2019, down 45 percent from 190.5 billion won the previous year, the company said in an earnings report this week. Revenue for the year was 1.3 trillion won, down 6 percent.

For the fourth quarter of 2019, operating profit reached 37.9 billion won, up about 81 percent from 21 billion won in the same period of 2018. Revenue for the quarter was 299.3 billion won, down about 3 percent.

The 50-50 joint venture of GS and Chevron has capacity to produce 26,000 barrels per day of base oil at its plant in Yeosu and 9,000 b/d of finished lubricants at its blending plant in Incheon.

Hyundai Shell Base Oil

Hyundai Shell Base Oil reported 6.7 billion won in operating profit for 2019, an almost 90 percent plunge from 65.7 billion won the previous year. Sales totaled 807 billion won for the year, up 10 percent from 2018.

In the fourth quarter of 2019, the company’s operating profit climbed 261 percent from 1.8 billion won to 6.5 billion won. Sales were 180.8 billion won, down about 2 percent from a year ago. The 60-40 joint venture between Hyundai Oilbank and Shell produces only Group II base oil, which has suffered from oversupply after a wave of production capacity additions.

"In the fourth quarter, the production of [marine gas oil] and [very-low sulfur fuel oil] increased, affected by IMO 2020, which brought production decrease and margin improvement to lube base oil,” a Hyundai Shell Base Oil spokesperson said in the company’s earnings release. "Performance is expected to improve but the deteriorating economy can limit further growth.”

Castrol India

Castrol India Ltd. reported a 28 percent year-on-year jump in its fourth-quarter profit, supported by lower total expenses and taxes.

Net profit increased to Rs 271.3 crore (Rs 2.71 billion or U.S. $38 million) for the quarter that ended Dec. 31, from Rs 211.9 crore a year ago, the lubricant maker said in a regulatory filing.

The Mumbai-based firm’s revenue from operations fell 2 percent to Rs 1,011.8 crore. Total expenses decreased 5.7 percent to Rs 689.2 crore and tax expenses plunged 42 percent to Rs 67.5 crore during the quarter.

For the full year 2019, net profit rose nearly 17 percent on the year to Rs 827.4 crore on lower expenses and taxes. Revenue from operations slipped marginally to Rs 3,876.8 crore from Rs 3,904.6 crore a year ago.

Managing Director Sandeep Sangwan, appointed as Castrol India’s managing director effective Jan. 1, said the company was able to grow margins through improved product mix, strong distribution and a robust cost and efficiency program despite muted demand across sectors. He added the company saw strong profit delivery from operations, which grew by 7 percent quarter-on-quarter and similarly 7 percent year-on-year at Rs 323 crore [for the quarter] and Rs 1,083 crore [for the year], respectively.

Balmer Lawrie

Balmer Lawrie & Co., one of India’s largest grease suppliers, reported operating profit from its greases and lubricants segment fell 3 percent for the quarter ending Dec. 31, due to weak revenue.

The segment’s consolidated profit before interest and tax totaled Rs 8.1 crore (Rs 80.8 million or U.S. $1.1 million) for the quarter, down from Rs 8.3 crore a year earlier, the government-owned company said in a regulatory filing.

Revenue for the segment declined 4 percent to Rs 88.1 crore during the quarter, the supplier of Balmerol-branded products stated.

For April to December 2019 period, the segment’s operating profit rose about 3 percent to Rs 25.6 crore and revenue grew 3.3 percent to Rs 295.9 crore.

Savita Oil

Savita Oil – a supplier of transformer oils, white oils, lubricants and other products – reported a 51.4 percent decline in net profit for the quarter ended Dec. 31 to Rs 21.6 crore (Rs 216 million), down from Rs 44.5 crore during the year-earlier quarter. Sales declined by 14.2 percent to Rs 512.8 crore in the quarter, down from Rs 597.6 crore.

Net profit for the nine months ended Dec. 31 declined to Rs 75 crore, down from Rs 80.9 crore during the year-earlier period.

The Mumbai, India-based company reported that its revenues from petroleum products declined to Rs 514.9 crore, down about 14 percent from Rs 597.8 crore. Revenues for the nine months ended Dec. 31 declined to Rs 1,565.8 crore, down more than 7 percent from 1,688.3 crores.

MJL Bangladesh Ltd.

MJL Bangladesh Ltd. reported net profit of 531.2 million taka (U.S. $6.3 million) for the quarter ended Dec. 31, down more than 5 percent from 560.6 million taka in the year-earlier period.

The company’s net sales revenue for the period reached 5.1 billion taka, down 5.5 percent from 5.4 billion taka.

Talking to local media Md Rokibul Kabir, company secretary of MJL Bangladesh said the closure of some private electricity generation units, a fall in automobile sales and the presence of low-quality lubricants in the market are the major reasons for the decline in its sales. A competitive market and the private sector's slowdown have also hurt the company’s business, according to Kabir.

Dhaka-based MJL Bangladesh is a joint venture between state-owned Jamuna Oil Co. and EC Securities Ltd. It supplies ExxonMobil’s Mobil brand of lubricants – some of which MJL blends, and some of which is imported – and its Omera Lubricants.