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Korean refiners log $3.4 bn profit on non-refining business

Petrochemicals, lubricant units offset sluggish refining margins

By Aug 09, 2021 (Gmt+09:00)

GS Caltex refinery in Yeosu, South Korea.
GS Caltex refinery in Yeosu, South Korea.

South Korean refiners enjoyed a $3.4 billion profit in the first half thanks to strong performance of non-refining business, swinging from a $4.5 billion loss a year earlier when the COVID-19 eroded fuel demand.

Refining margins stayed sluggish in the January-June 2021 period, but healthy petrochemicals and lubricant business offset the weakness. Refiners’ portfolio diversification started bearing fruit when the pandemic kept biting into their traditional business.


GS Caltex, the second-largest refiner in the country, reported 379.2 billion won ($331 million) in operating profit during the second quarter with a 7.7 trillion won revenue. It suffered operating loss of 133.3 billion won a year earlier. The profit in the latest quarter pushed up its total operating profit to 1.1 trillion won in the first half of this year.

Operating profit from its refining business in the April-June period fell to 134.3 billion won, less than a third of 463.5 billion won in the previous three months, as slower growth in crude prices hurt its inventory gains. Growth in operating profit from Its petrochemicals and lubricant units, however, logged 94.6% and 27.3%, respectively.

Earlier, SK Innovation Co., S-Oil Corp. and Hyundai Oilbank reported 1 trillion won, 1.2 trillion won and 678.5 billion won in operating profit, respectively, thanks to strength in those non-refining units. Operating profit of the country’s four refiners totaled 3.9 trillion won ($3.4 billion) in the first six months, turning from a combined 5.1 trillion won ($4.5 billion) loss a year earlier. Refiners focused more on petrochemicals and lubricant sectors, reducing refining business, since the COVID-19 eroded fuel demand, hurting refining margins.
S-Oil's RUC/ODC Complex that produces ethylene, propylene, by using bunker-C oil as a raw material.
S-Oil's RUC/ODC Complex that produces ethylene, propylene, by using bunker-C oil as a raw material.


Refining margins – the differences between the value of petroleum products and the value of crude oil - have been below domestic refiners’ usual breakeven point of around $4-$5 per barrel. The average refining margin in the first half was $1.9 a barrel, far below their breakeven points, according to the industry, indicating the more fuels they produced, the more loss they suffered.

To improve profits, refiners raised purchase of cheaper crudes from Latin America at the expense of more expensive oils from the Middle East. Hyundai Oilbank, for example, bought Colombia’s Castilla last year, which is slightly low-quality but about 10% less expensive than crude from the Middle East.

Its usage of Middle Eastern crudes accounted for 41.8% last year, less than a half of 84.6% in 2016. GS Caltex also reduced Middle Eastern oils usage to 73.5% from 99.2% during the period. That raised speculations that local refiners’ breakeven point fell below the usual $4-$5 levels.


The industry’s outlook for the second half stayed bright.

“Earnings are expected to stay strong for a while as demand for a key petrochemical product polypropylene and industrial lubricants remains firm,” said an industry source.

Refining margins also improved. The benchmark Singapore gross refining margin against Dubai rebounded to around $3.5 a barrel this month, the highest since June 2019, from $1-$2 earlier this year. Gasoline consumption increased in the summer driving season.

“Along with strong non-refining business, refining margins are growing on increasing vaccinations. That will improve refiners’ profits,” said another industry source.

Write to Kyung-Min Kang at

Jongwoo Cheon edited this article.

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