Oil Refining Industry
Prior to the oil refining industry’s Q2 earnings release, the sales turnover of major domestic oil refiners is projected to bottom out due to the marginal drop in the oil and refining prices with the first half year’s global economic depression.
However, the latter half profit figures will see a slight increase, propelled by the accomplishments of petro chemistry products.
Accordingly, the shift in industry to petro chemistry is expected to be accelerated.
On July 21, the oil refining and securities industries have estimated that the Q2 sales of major oil refiners, such as SK Innovation, GS Caltex, S-Oil, and etc., will drop from 50 to maximum 90% in comparison to the previous quarter’s.
Plummeting refining margins from the global economic depression is the main cause.
According to HMC Investment Securities (HMCIB), the average complex refining margin from Q1 at over US$9.00 per barrel has constantly dropped since April, to under US$5.00.
The refining margin has been recovering since mid-May up to US$7.80 in June, but it was still far behind sufficient for recovering the profit figures.
Oil prices which used to mark over US$120.00 per barrel are currently fluctuating at US$100.00.
In addition, the worsened profitability due to a temporary oversupply of benzene, paraxylene (PX) and other petro chemistry products and routine maintenance contributed to the overall profit degeneration.
Yet some express an optimistic outlook on business gradually picking up in Q3, after the Q2 trough.
Although the refining margin will remain limited by the prolonged global economic recession, the industry is projected to show a slow recovery trend centered on petro chemistry products such as benzene, toluene, xylene (BTX).
In fact, seeing from HMCIB’s earnings projections of SK Innovation’s subsidiaries by each business sector, SK Energy in the oil refining industry showed profit figures of 130 billion KRW in 2011, followed by a dramatic drop to under 30 billion KRW in 2012, and expects a recovered figure of no more than 80 billion KRW this year.
On the other hand, SK Global Chemical for manufacturing petro chemical products records a stable 70 billion KRW from 2011 to last year and expects 80 billion KRW this year, followed by a skyrocketing rise up to 140 billion KRW by 2015.
Also, S-Oil’s last year refining business was dull enough to report some deficits while its petro chemistry business reaped over 80 billion KRW in profits.
With China extending its high-purityterephthalic acid (PTA) production, the demand for PTA’s crude materials, BTX and PX, is largely increasing.
Few express concerns that the business outlook on the latter half year remains negative due to several variables.
The Korea Chamber of Commerce & Industry (KCCI) reported that the development of shale gas is weakening the price competitiveness and also forecasted the latter half year of the oil refining industry to be “cloudy” in its “Second Half of 2013 Industry Forecast Research.”
KCCI argued the loss of price superiority by explaining that Korea has a manufacturing cost of US$1,000.00 by using the naphtha cracker to produce one ton of ethylene which is the basic material of petro chemistry, while the US spends US$600.00 by using ethane cracker with shale gas.
An oil refiners representative claimed, “Since it is a repeated pattern for the oil refining industry to bottom out in Q2 then pick up in Q3, the latter half year’s business showings will be better than the first half’s, unless something critically negative happens.”