Refiners Operating at a Loss
Korean oil refiners will reduce their facility investment by more than 30 percent in 2021 versus 2020.
They are expected to invest only 2.3 trillion won in 2021, down 1.2 trillion won from 3.5 trillion won in 2020, according to a facility investment report released by Korea Development Bank on Dec. 29. This will be a 33.7 percent decrease compared to 2020.
The oil refiners believe that the COVID-19 pandemic will continue to weaken demand for oil products in 2021. They have already lowered their plant operating rates. The average plant operating rate of the four major Korean oil refiners -- SK Energy, GS Caltex, S-Oil, and Hyundai Oilbank –- stood at 71.6 percent in October. It is likely to fall to the 60 percent range in December.
Sales of petroleum products usually peak in the fourth quarter, a time when demand for heating oil increases. Oil refiners are lowering plant operation rates because increasing production only causes more losses. The Singapore composite refining margins, a leading indicator of oil refiners' earnings, stood at US$1.1 a barrel in the third week of December. US$4 to US$5 per barrel is a break-even point. The cumulative operating loss of the four Korean oil refiners reached nearly five trillion won by the third quarter of 2020.