Rising Cracking Margins Bode Well for Refiners | Be Korea-savvy

Rising Cracking Margins Bode Well for Refiners

(image:SK Innovation)

(image:SK Innovation)

SEOUL, Aug. 20 (Korea Bizwire)A key measure of oil refining companies’ profitability has risen in recent months due to rising crude prices, raising speculation that South Korean refiners’ third-quarter earnings will improve sharply, industry sources said Sunday.

The benchmark Singapore complex gross refining margin (GRM) hovers around US$8 per barrel this month, up from $7.4 in July, $6 in May and $5.8 in March, according to the sources. Singapore is the regional trading hub of the benchmark Dubai crude.

The margin is the difference between the total value of petroleum products coming out of an oil refinery and the cost of crude and related services, including transportation.

The reading hovers far higher than the break-even point for the domestic oil refining industry. Usually, a South Korean refiner can generate a profit with a refining margin of more than $5 per barrel.

Rising cracking margins are expected to help local refiners rack up sound third-quarter earnings, analysts said.

South Korean oil refiners, led by top player SK Innovation Co., logged weaker-than-expected earnings in the April-June period due to low oil prices and inventory losses.

SK Innovation posted a net profit of 292 billion won ($262 million) in the second quarter, more than halved from a profit of 626 billion won a year earlier because of lower oil prices and inventory losses.

GS Caltex Corp., the No. 2 refiner in South Korea, reported that its second-quarter earnings dipped 71 percent on-year to reach 135 billion won, with operating income also down 73 percent to 210 billion won over the cited period.

“Local refiners’ margins have improved thanks to a rise in oil prices, and their current pace will be extended under the current quarter,” said Park Yun-joo, an analyst at Mirae Asset-Daewoo Securities.

Refiners in South Korea racked up record earnings last year largely due to improved cracking margins, inventory gains and solid demand for petrochemical products.

The country’s four major oil refiners logged a combined operating income of 8.03 trillion won last year, an all-time high figure.


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