Korean refiners post strong 2022 earnings on robust lubricant oil sales

[Courtesy of each company]

South Korean refiners posted strong earnings last year on the back of a surge in the sales of lubricant oil led by a global rise in the demand for diesel despite the falling oil prices.

The country’s four major refiners - SK innovation Co., S-Oil Corp., GS Caltex Corp., and HD Hyundai Oilbank Co. - posted a combined operating profit of 2.76 trillion won ($2.1 billion) last year.

The top refiner SK innovation raised 1.07 trillion won in operating profit on sales of 4.98 trillion won. S-Oil generated 3.2 trillion won in sales and 1.1 trillion won in operating profit from the lubricating oil business.

S-Oil had the highest operating margin of 32.5 percent and SK innovation 21.5 percent. An operating margin of above 30 percent is rare in the local manufacturing sector except for the chip and bio sectors in an up cycle.

GS Caltex raised 2.04 trillion won in sales and 454.6 billion won in operating profit from the lubricant oil business, with an operating margin of 22.3 percent. HD Hyundai Oilbank reported 1.27 trillion won in sales and 125.8 billion won in operating profit with a margin of about 10 percent.

Korean refiners made huge profits by exporting gasoline and diesel thanks to a refining margin of above $20 per barrel until the first half of last year. A refining margin is measured by the difference between the cost of crude oil and the average selling price of refined products. It also refers to an indicator of the profitability of refining crude oil per barrel.

The refining margin, however, started to fall from the third quarter of last year on a decline in the global oil prices to stand at $7 to $8 per barrel.

Lubricant oil business, in the meantime, helped up business at local refiners. Russia’s invasion of Ukraine in early 2022 led to an unstable supply of liquefied natural gas, which caused the demand for diesel oil to grow.

Korean refiners reduced production in lube base oil, an ingredient used for manufacturing lubricant oil, to raise diesel supply instead. The subsequent shortage of lubricant oil caused its price to soar in the third quarter of last year.

“Korean refiners’ earnings in the cited quarter were better than ever, thanks to the rising demand for diesel and the increased price of lube base oil,” said an unnamed industry source.

Industry insiders, however, said that the high earnings in the lubricant oil business are less likely to continue over the long run.

“Lubricant oil is mostly used as engine oil for internal combustion vehicles, indicating that the gradual shift toward electric vehicles can lead to less demand for the oil,” said another unnamed industry source.