S. Korean refiners running at near full capacity amid recovery in margin, demand

South Korean refining majors are running at near full capacity amid improved demand and refining margin, raising expectations for amelioration in their financial statements for this year.

According to Korea National Oil Corporation on Monday, the utilization rate in crude distillation units (CDU) of four major refiners – SK energy Co., GS Caltex Corp., S-Oil Corp., and Hyundai Oilbank Co. – averaged 76.2 percent as of November last year, up 4.4 percentage points from the same period a year ago.

The CDU operation that averaged slightly above 70 percent level amidst pandemic began to bounce back from the second half of last year. Demand for petroleum products has improved on high Covid-19 vaccination rate and refining margin has stabilized on improved supply and demand.

S-Oil kept up capacity to full level at its refining facilities last year. The company also revised upward its utilization rate of lube base oil and petrochemical product facilities to between 100 percent and 115 percent. This means that the company has exceeded production capacity set earlier thanks to facility improvement and increased efficiency.

GS Caltex and Hyundai Oilbank have also raised CDU utilization rate to over 90 percent level in the third quarter last year.

Industry¡¯s largest SK energy has been running its primary processing CDUs above 75 percent and secondary processing advanced facilities at full capacity.

Local refiners are expected to run CDU at around 90 percent, which is near full capacity when counting out the regular maintenance period, this year.

The normalized activity comes on improved demand for petroleum products at home and abroad.

According to KNOC, demand for petroleum products increased 8.5 percent to 77.19 million barrels in November last year from a year ago and exports 16 percent to 38.99 million barrels.

Refining margin – the difference between the value of petroleum products and crude oil to measure profitability – also rose on increased demand globally.

The Singapore cracking margin has stayed above $5 per barrel for two straight months in November and December last year. Refiners generally make profit when refining margin reaches $4 to $5 per barrel mark.

Brokerages projected the four local refiners to have raised 7 trillion won ($5.9 billion) in combined operating income in 2021.

The Organization of the Petroleum Exporting Countries and International Energy Agency have also forecast global demand for petroleum products to continue to increase this year, allowing solid business of Korean refiners.

Despite the uncertainties from Covid-19 variant Omicron and additional quota on China¡¯s oil exports, experts believe global petroleum demand has passed the bottom and could recover to the pre-Covid-19 levels.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]