South Korean refiners' losses deepen in Q3, margins set to improve in Q4

S-Oil

04/11/2024 07:21

* 
      South Korean refiners report steepest quarterly losses in
years
    

        * 
      Q4 margins to improve on winter demand, reduced run rates
    

        * 
      Asia June-Aug refining margins weakest in two years - LSEG
data
    

  
    By Joyce Lee
       SEOUL, Nov 4 (Reuters) - South Korean refiners reported
on Monday sharp losses in the third quarter from oil refining,
but expect their margins to recover in the fourth quarter with
peak winter demand and  refinery run cuts in Asia.
    SK Innovation  096770.KS , parent of South Korea's largest
refiner SK Energy, said the July-September quarter operating
loss for its refining business was 616.6 billion won ($450.2
million), its largest loss since the fourth quarter of 2022. 
    Declining oil prices amid concerns over slowing demand in
China and a potential recession in the U.S. caused "significant"
inventory-related losses, while refining margins were poor in
the third quarter, the company said.
    "We were in an unfavourable macro backdrop, which drove down
the crude oil price and the overall product market was
squeezed," Son Sung-chul, head of corporate strategic planning
at SK Energy, told analysts on an earnings call. 
    "We continued to maintain a minimal run rate for our crude
distillation units (CDUs), so that we can effectively defend
against negative topping margins," Son said. 
        The company maintained its average CDU run rate at 81%
in third quarter from the second quarter, but it is down 1
percentage point from 2023. 
    S-Oil  010950.KS , the country's third-largest refiner whose
main shareholder is Saudi Aramco  2222.SE , reported a
September-quarter operating loss of 415 billion won on Monday,
versus a 859 billion won profit a year earlier. 
    Its refining business reported its largest quarterly loss
since the first quarter of 2020, according to company documents.
 
    Last week, unlisted refiner Hyundai Oilbank swung to a 263
billion won operating loss for the third quarter, versus a 262
billion won profit a year earlier.  
    Asia's refining margins  DUB-EFS-1M  between June and August
slumped to the lowest since the third quarter of 2022, LSEG data
showed, forcing refiners to cut output.
    While margins have recovered in recent weeks on lower crude
prices, oversupply of refined products and competition from new
refineries in China and the Middle East weighed on the outlook
for Asian refiners, analysts said.
    For the October-December quarter, SK Innovation said it
expects lower oil prices to support refining margins while
seasonal heating demand sets in. The company added that economic
prospects from growth in the U.S. and from China's stimulus
could improve and support oil demand. 
    In the fourth quarter, SK may keep crude throughput at a
similar level as the third-quarter if margins remain weak, but
it plans to increase output if the market recovers, Son said,
adding that it is also importing fuel oil to improve margins.
    S-Oil also said cuts in supply from refineries around the
region would support better margins in the fourth quarter. 
    
($1 = 1,369.7100 won)

 (Reporting by Joyce Lee; Editing by Florence Tan and Sonali
Paul)
 ((joyce.lee@tr.com;))