SK innovation shifts to red due to falling refining margins

SK innovation Co. Ulsan Complex. [Courtesy of SK innovation]

SK innovation Co., a major energy and chemicals company in South Korea, suffered an operating loss in the second quarter due to lower refining margins amid concerns about an economic slowdown.

SK innovation said Friday that it reported a preliminary operating loss of 106.8 billion won ($83.3 million) for the April-June period versus an operating profit of 2.33 trillion won a year earlier.

Revenue came to 18.72 trillion won for the quarter, down 5.9 percent from a year ago. Net loss stood at 120.4 billion won.

When compared to the previous quarter, both revenue and operating profit witnessed declines of 415.7 billion won and 481.8 billion won, respectively.

On the bright side, the company’s battery business achieved remarkable results, benefiting from improved productivity in newly operational factories and increased sales volume.

SK on, SK innovation’s battery unit, achieved its highest-ever quarterly revenue of 3.69 trillion won, up 12 percent on quarter and 187 percent on year.

SK on’s revenue for the first half of this year was approximately 7 trillion won, a significant increase from a year ago. Its operating losses also narrowed to 131.5 billion won in the second quarter, improving from the previous quarter’s loss of 344.7 billion won.

The increase in yield from new factories and the effects of the Advanced Manufacturing Production Credit (AMPC) under the U.S. Inflation Reduction Act played a crucial role in achieving the reduction in losses, with the AMPC effect alone contributing around 167 billion won.

One notable highlight was SK on’s earnings before interest, taxes, depreciation, and amortization (EBITDA), which amounted to 72.5 billion won. This marks a turning point for the battery unit, as it achieved profitability for the first time since the third quarter of the previous year when it was at 9.4 billion won.

However, the petroleum business faced challenges during the second quarter, recording an operating loss of 411.2 billion won.

On the other hand, the chemical business showed resilience with an operating profit to 170.2 billion won, up by 61.3 billion won from the previous quarter, amid falling naphtha prices, which led to inventory-related losses.

In the lubricant oil business, improved margins resulting from lower oil prices contributed to an operating profit of 259.9 billion won. However, the petroleum development business recorded a more modest operating profit of 68.2 billion won.