Combined Q1 Operating Loss Expected to Top 3 Tril. Won
The four major Korean oil refiners are expected to post a combined deficit of more than 3 trillion won in the first quarter of 2020 due to the new coronavirus outbreak and a sharp drop in oil prices.
S-OIL announced on April 27 that it recorded 1.007 trillion won in operating loss in the first quarter, the worst performance since the company’s establishment in 1976. This is about three times the previous quarterly loss record of 333.5 billion won posted in the fourth quarter of 2018.
Hyundai Oilbank announced on April 29 that it recorded operating losses of 563.2 billion won in the first quarter. The two oil refiners combined deficit reached 1.57 trillion won.
SK Innovation, which announces results on May 6, is expected to surpass one trillion won in deficits in the first quarter. GS Caltex is also likely to suffer a deficit of more than 500 billion won.
When the loss estimates of SK Innovation and GS Caltex are combined with the losses of S-Oil and Hyundai Oilbank, the total amount reaches 3.07 trillion won, almost equal to the four oil refiners’ combined operating profit of 3.1 trillion won for the whole of 2019.
A turnaround is hard to expect in the second quarter as demand will remain flat due to the COVID-19 pandemic. If international oil prices stop their downward movement after the oil producing countries cut production, oil refining companies’ inventory valuation losses will shrink.
The problem is that the refining margin is closely related to global demand. “Global demand for petroleum and gasoline continues to remain sluggish so it will be difficult for oil refining companies to recover in a short period of time,” said Hwang Yoo-shik, a researcher at NH Investment & Securities.