Refiners pin hopes on earnings recovery in Q3

SEOUL-- South Korean oil refiners, led by SK Innovation Co., are pinning high hopes on a rebound in their earnings under the current quarter after reporting a worse -than-expected bottom line for the April-June period, industry sources said Sunday.

Local refiners saw their second-quarter earnings almost halve from a year earlier due to low oil prices, a rise in inventory losses and weaker-than-expected margins on key chemical products. Global oil prices dropped by more than 10 percent during the second quarter.

SK Innovation, a top oil refiner, said last week its second-quarter net profit stood at 292 billion won (US$262 million) on a consolidated basis, a sharp decline from a profit of 626 billion won a year earlier.

Operating income plunged 62.4 percent on-year to reach 421 billion won, while sales rose 2.7 percent to 10.56 trillion won over the cited period.

Its refining business logged an operating income of 12.5 billion won in the second quarter, a sharp decline from 414 billion won the previous quarter.

No. 3 player S-Oil Corp. reported an 85 percent drop in its second-quarter profit from a year earlier, as low oil prices drove up inventory losses.

Net profit reached 66.9 billion won in the April-June period compared with 444 billion won a year earlier.

Unlisted refineries such as GS-Caltex Corp. and Hyundai Oilbank Co. are widely expected to report weaker-than-expected earnings for the second quarter for similar reasons.

"Although business conditions remained firm in the second quarter, narrowed margins stemming from low oil prices, coupled with increased inventory losses, were negative for their performance," said Baik Young-chan, an analyst at KB Securities. "Also, their petrochemical business reported weaker-than-expected results."

But analysts said local refiners may report a rebound in their bottom line under the current quarter on the back of a recovery in refining margins and firm demand for petrochemical goods.

SK Innovation earlier forecast a rosy picture for the second half on the back of improving refining margins and stable oil prices.

"SK Innovation's earnings will increase during the remainder of the year because of strong margins," said Noh Woo-ho, an analyst at Meritz Securities.

On such a rosy outlook, stocks of local refiners closed at near 52-week highs on Friday.

SK Innovation closed at 175,000 won on the Seoul bourse, up 0.29 percent from the previous session's close, and S-Oil remained unchanged at 114,000 won. The country's benchmark index, the KOSPI, plunged 1.73 percent to 2,400.99 points.

Source: Yonhap News Agency

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