Oil refiners report a strong first quarter as margins recover

Korean oil refineries swung to profit in the first quarter this year on strong oil prices and improved refining margins as the vaccination rollout drove up demand for oil products.

Korean oil refineries swung to profit in the first quarter this year on strong oil prices and improved refining margins as the vaccination rollout drove up demand for oil products. The refining margin indicates the price difference between crude oil and oil products such as gasoline and diesel.

SK Innovation on Thursday reported 502.5 billion won in operating profit in the Jan. to March period this year from an operating loss of 1.8 trillion won a year earlier. The market consensus was 378.2 billion won, according to FnGuide.

The company reported net loss of 368.1 billion won after reflecting the settlement payment to LG Energy Solution regarding a two-year legal battle on electric vehicle (EV) battery technology. Its first quarter net loss last year came to 1.5 trillion won.

SK Innovation and LG Energy Solution arrived at a 2 trillion-won settlement recently where SK Innovation agreed to pay half of it in cash through 2022 and the rest through royalty payments, which will start from 2023.

SK Innovation reflected 976.3 billion won of the settlement payment in the first quarter earnings, the company said.

Its petrochemical business reported 416.1 billion won in operating profit in the first quarter from an operating loss of 192.5 billion won the previous quarter on improved refining margins, which came to $5.6 per barrel in the first quarter from $3 in the previous quarter.

The increased price of the benchmark Dubai crude also contributed to the profit. Its price increased from $44.6 per barrel in the fourth quarter of 2020 to $60 per barrel in the first quarter of this year.

The company's battery business reported 176.7 billion won in operating loss in the first quarter.

SK Innovation explained that while sales improved by 80 percent on increased EV demand, initial operating costs of its facilities in Europe and U.S. pulled down the profit.

"The business environment is recovering from the pandemic which led to improved earnings in the petrochemical business," said Kim Jun, CEO of SK Innovation, in a release Thursday.

"We expect growth in new businesses such as batteries and materials as well."

GS Caltex, 50.7 percent owned by GS Holdings, swung to profit in the first quarter, reporting 632.6 billion won in operating profit from 1.03 trillion won in operating loss from the same quarter last year.

S-Oil posted 629.2 billion won in operating profit from 1 trillion won loss last year during Jan. to March period.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]