Refiners cautious about 2016 outlook

By Lee Hyo-sik

Despite raking in record earnings this year, oil refiners here remain cautious about their business outlook for 2016 as they grapple with low international crude prices, China’s growing refining capacity and other unfavorable conditions.

Korea’s four refiners ― SK Innovation, GS Caltex, S-Oil and Hyundai Oilbank ― say they will continue to upgrade production facilities, produce more high value-added products and take other steps to improve profitability.

According to the refiners, Thursday, their combined operating profit reached 4.05 trillion won ($3.5 billion) in the first nine months of the year.

SK Innovation, Korea’s largest oil refiner, had a 1.67 trillion won operating profit, followed by GS Caltex (1.1 trillion won), S-Oil (860 billion won) and Hyundai Oilbank (421 billion won).

Industry analysts estimate the companies will likely generate over 1 trillion won operating profit in the fourth quarter, pushing their total this year to over 5 trillion won, the highest since 2011.

In 2011, the refiners posted record operating profit of 7.2 trillion won due to surging refining margins on soaring international oil prices.

According to corporate information provider FnGuide, SK Innovation and GS Caltex are expected to post an operating profit exceeding 300 billion won, while S-Oil will likely make 250 billion won.

The companies have turned around this year from their dismal performance in 2014 when they lost money on the falling value of their oil reserves as the crude price dropped. Their margins shrank as oil prices fell last year, and the refiners failed to make money in the face of falling refining margins.

In 2014, SK Innovation lost 224 billion won, while GS and S-Oil posted operating losses of 456.3 billion won and 289 billion won, respectively.

“It is really hard to predict what things will be like in 2016 because of a great deal of business uncertainty at home and abroad,” a SK Innovation spokesman said. “We are just hoping that in 2016 our business will be as good as it has been this year.”

The spokesman said if the global economy continues to remain in the doldrums, the demand for gasoline and other processed petroleum products will stagnate, which would not be good news for SK and other refiners.

“Nonetheless, we have done better this year than initially expected on the back of improving refining margins,” he said. “Our margins have averaged about $7.60 a barrel, higher than last year’s average of $5.90. We will continue to modernize our production facilities and take other steps to improve our bottom line.”

S-Oil also expressed a cautious outlook for next year, saying it will do everything to remain profitable.

“We just hope that things do not further deteriorate next year,” an S-Oil spokesman said. “We have been able to post better results than in 2014, thanks mainly to improving refining margins. We will continue to upgrade our plants in Ulsan to produce high value-added products at lower costs.”

A Hyundai Oilbank spokesman said crude oil prices will remain low in 2016, adding it is difficult for the company to draw up next year’s business plan.

“We are living in an era of increasing uncertainty,” he said. “Thankfully, we have been able to make profits on the back of rising refining margins this year. But nobody knows what will happen next year. All we can do is stay vigilant and make every effort to survive through turbulent times.”