Oil Refineries Singing Let Good Times Roll
By Kim Hyun-cheol
Staff Reporter
Thanks to growing demand from China and better refining margins, Korean refineries are set to enjoy profitable showings in the first quarter. But the outcome is also likely to stir the long-pending controversy of their price policy in the domestic market prior to the kickoff of a new price-disclosing system.
SK Energy, South Korea's largest oil firm, late last month posted a surprising first-quarter showing. Its sales fell 14.2 percent to 8.1 trillion won ($6 billion) in total because of lower crude oil prices, but operating profit and net profit amounted to 645.8 billion won and 247 billion won, respectively, growing 62 percent and 2 percent.
Boosting exports lifted the company up high in the first months of this year, as sales abroad exceeded those at home for three straight quarters. SK Energy sold 4.7 trillion won overseas in a record first-quarter exports outcome, while sales dropped 26 percent on the domestic market.
Foreign exchange losses of up to 377.3 billion won, however, eroded a substantial part of its net.
S-OIL, the nation's third-largest refiner, also posted Wednesday a 165.8-billion-won net profit in the first quarter, up 51 billion won from the previous year. Operating profit also rose 26.7 percent to 401.4 billion won, while overall sales fell 1.1 trillion won to 3.8 trillion won.
Analysts predict the other two refineries, GS Caltex and Hyundai Oilbank, will also have profitable outcomes in the first quarter, which would mark a huge turnaround from a tough last year.
"GS Caltex is expected to post similar profits as S-OIL, and the unlisted Hyundai Oilbank is also likely to turn to black in the first quarter," said Cho Seung-yeon, an analyst at LIG Investment & Securities.
GS Caltex posted a net loss over 80 billion won and Hyundai Oilbank over 250 billion won throughout 2008.
Beijing's economic pump-priming package, as well as growing overall refining margins, contributed to the favorable profits, the Korea Energy Economics Institute says.
The monthly survey of purchasing managers for more than 700 Chinese manufacturers rose to 53.5 in April, up 1.1 percentage points from March's 52.4, the government-sanctioned China Federation of Logistics and Purchasing reported Friday. With such a sign of increasing energy demand from the world's second-largest energy consumer, global oil prices bounced back to $54 a barrel this week.
Also, improving refining margins enabled firms to thicken their pocketbook in spite of a fall in overall sales. The margins, price rates of crude oil and its processed products, remained positive in January and February since turning positive December last year.
Some industry sources, however, remain skeptical on the outlook in the second quarter on the grounds of signs of another margin contraction.
"The outcomes could be just temporary, as we can't be sure of continuing them through June," an official of a local refiner said on condition of anonymity. "Refining margin started to wane again in March, while both China and India began to increase oil production at the same time.
"It still remains to be seen if refineries here can maintain this success throughout the year, with economic slowdown still prevailing across the world," he said.
However, Cho of LIG Securities forecast refineries will stay in good shape this year, saying changes in refining margins will not seriously affect overall showings.
"Business structure is now diversified and stable for all Korean companies, and so are export destinations. The current success is mainly a result of their management in the end, in that they were quick in changing their organization according to changes in the global markets," he said.
Improving balance sheets, on the other hand, are now bringing another daunting issue to refineries. Pressure from local consumers is likely to be on the rise, spelling further trouble for oil firms, which have been under criticism for "always too fast in raising and too slow in cutting" prices.
Hitting a high of 1,950 won in July last year, average per-liter gas prices are currently set at around 1,500 won ― in a slow and steady rise from late last month. Profitable showings in the first quarter, however, will strengthen requests for an additional markdown, sources say.
Oil price falls here lag behind that of the global markets. International oil prices fell by about one third in the last 10 months, but domestic oil product prices decreased by just 20 percent in the same period.
In a government attempt to stabilize the local market, prices of petroleum products from each refinery will be disclosed Friday on Opinet, a state-managed Web site offering real-time gas pumps-related information, and the official Web site of the Korea National Oil Corp.