South Korean Oil Refiners Swing to Profit as Petrochemical Firms Struggle
The four major oil refiners in South Korea, SK Innovation, GS Caltex, S-Oil, and HD Hyundai Oilbank, swung to an operating profit of 882.71 billion won in the second quarter from a loss of 124.44 billion won in the same period last year.
The improvement was driven by their lubricating base oil business, which saw a sharp increase in profitability due to tight supply and higher prices. The spread for lubricating base oil rose from $70 to $160 this year.
SK enmove, SK Innovation's lubricants subsidiary, posted 691.9 billion won in operating profit in the second quarter, up 414.4% from a year earlier. The other three major refiners also saw significant increases in their lubricating base oil divisions.
In contrast, petrochemical firms faced a 'buy high, sell low' effect, as they sold products at lower prices despite higher raw material costs. LG Chem managed to benefit from wider spreads for key products by using inventory secured before geopolitical risks escalated in the Middle East, but its results were still affected by supply chain disruptions.
Lotte Chemical is expected to face challenges in the third quarter due to reverse lagging and a negative effect on its basic chemicals business. The ethylene spread has fallen from $400 to around $100 this month, making it harder for petrochemical firms to maintain profitability.