Meritz Securities said on February 1 that the South Korean oil refining industry is expected to remain stable until 2020 if the volatility of oil prices is limited.
“No oil refining facility expansion is in sight until 2020 although the construction of an average oil refining facility requires at least three trillion won in investment and a planned operation of at least 30 years,” it explained, adding, “Countries in the Middle East that are capable of running oil refining facilities are showing a decline in facility investment due to the low oil price trend that has continued for a while.”
When it comes to international oil prices, which are showing an uptrend these days, it said that the volatility is likely to increase based on geopolitical risks, OPEC member countries’ agreement on production cut, etc. “The WTI price is estimated to reach US$70 to US$80 per barrel in the short term, but the average price is estimated at US$65 per barrel,” it went on to say, continuing, “Given the estimates and solid oil refining margins, South Korean oil refining companies’ growth is likely to continue for the time being.”
Concerning their non-oil refining business, Meritz Securities forecast that the ethylene price is likely to become relatively low this year unlike those of propylene, butadiene and benzene.
Last year, South Korean oil refining companies showed the best performance ever. For example, SK Innovation’s operating profit reached a new high of 3.234 trillion won (US$last year, breaking the previous record by 6 billion won (US$5.4 million) in just one year. Likewise, S-Oil’s operating profit hit a new high of 1.311 trillion won (US$1.18 billion) and Hyundai Oil Bank’s operating profit rose 30.5% from a year earlier to 1.260 trillion won (US$1.13 billion). The operating profit of GS Caltex is estimated at no less than 2 trillion won (US$1.8 billion) or so.