Refiners likely to report sluggish Q2 earnings on low oil prices

SEOUL-- South Korean refiners, led by SK Innovation Co., may report earnings declines in the second quarter of the year due to a falloff in oil prices and low refining margin, industry sources said Saturday.

SK Innovation is forecast to have racked up a net profit of 519 billion won (US$463 million) during the April-June period, down from 626 billion won a year earlier, according to the data compiled by Yonhap Infomax, the financial information arm of Yonhap News Agency.

Its operating income is estimated at 658 billion won for the second quarter, compared with 1.12 trillion won in operating income a year earlier.

S-Oil Corp., the third largest, is also expected to report a weak bottom line for the second quarter with a net profit of 164 billion won, a sharp drop from the profit of 444 billion won posted in April-June of 2016.

Local brokerage houses put the refiner's second quarter operating income at 234 billion won, also down from the 641 billion won in operating income logged a year earlier.

The unlisted LG-Caltex Corp., the No. 2 refiner, may also be faced with downbeat results.

"A fall in oil prices and low refining margins were behind their weaker-than-expected earnings," said Han Seung-jae, an analyst at Dongbu Securities.

The analyst said local refiners have also suffered valuation losses of their inventories.

But analysts painted a rosy picture of the refiners' earnings down the road, citing stable refining margins.

"The second-quarter's business slump is seen as a one-time event. Investors need to look at their improving margins," said Hwang Yu-shik, an analyst at NH Investment and Securities.

Baik Young-chan, an analyst at KB Securities, said global oil prices will move between $45 and $50 per barrel during the third quarter, which will help narrow their valuation losses of inventories and improve the refining margin.

Refiners in South Korea racked up record earnings last year largely due to improved cracking margins, inventory gains and solid demand for petrochemical products.

The country's four major oil refiners logged a combined operating income of 8.03 trillion won last year, an all-time high figure.

Source: Yonhap News Agency

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