Crude Oil Production Cut Talks Fail... Impact Hits Refining, Chemical, and Shipbuilding Stocks

[Asia Economy Reporters Koh Hyung-kwang and Koo Eun-mo] International oil prices have continued to plummet vertically day after day, darkening the stock outlook for related industries such as shipbuilding, refining, and petrochemicals.

According to the Korea Exchange on the 10th, Samsung Heavy Industries closed at 5,360 won after a sharp 12.1% drop the previous day. This is a 52-week low, down 26% since the beginning of this year, and a 42% decline compared to last year's peak (9,310 won). Daewoo Shipbuilding & Marine Engineering also fell 7.2% the previous day, hitting a 52-week low, and Korea Shipbuilding & Offshore Engineering, which closed at 96,900 won the previous day, is also near its 52-week lowest point (93,800 won on August 7 last year).

Refining stocks also fell sharply due to the plunge in international oil prices. S-Oil dropped 9.80% compared to the previous trading day, and with declining refining margins, Heungkuk Oil (-9.73%), SK Innovation (-8.24%), and GS (-3.63%) also closed lower. Petrochemical stocks were not spared from the decline either. LG Chem fell more than 5% (-6.50%), and Kumho Petrochemical (-4.19%), Lotte Chemical (-2.56%), and Daehan Petrochemical (-1.46%) also declined.

This is due to the collapse of the production cut agreement between the Organization of the Petroleum Exporting Countries (OPEC) and other major oil-producing countries (OPEC+), which caused international oil prices to plunge. From next month, OPEC+ countries will be able to increase crude oil production at their discretion. Additionally, concerns about oversupply are expanding as the impact of the novel coronavirus raises the possibility of a global demand decrease.

International oil prices fell more than 20% again on this day. According to Bloomberg, on the 9th (local time) at the New York Mercantile Exchange (NYMEX), April delivery West Texas Intermediate (WTI) crude oil closed at $31.13 per barrel, down 24.6% ($10.15) from the previous trading day. This followed a 10.1% drop to $41.28 on the 6th, marking a sharp decline for two consecutive trading days.

If the downward trend in international oil prices continues, it is expected to negatively affect the stock prices of shipbuilders. When the global economy slows down, maritime cargo volumes decrease, reducing orders for shipbuilders, and orders for offshore plants, which account for a significant portion of their orders, may sharply decline.

Typically, offshore plant orders increase when international oil prices are above $60 per barrel. However, if the situation of prices in the $30 range persists or worsens, it will inevitably have a negative impact on shipbuilders' orders. Jeong Dong-ik, a researcher at KB Securities, said, "If the oil price decline continues, the offshore plant business, which is a core business for shipbuilders, could face a drought in orders. This will directly affect the shipbuilders' performance and negatively impact their stock prices."

The refining and petrochemical industries are also expected to face unavoidable negative effects for the time being due to valuation losses on inventory assets and overall demand contraction caused by the oil price decline. However, since the oil price drop ultimately leads to increased cost competitiveness, the possibility of a rebound in the mid to long term is also expected to rise accordingly. Lee Do-yeon, a researcher at Korea Investment & Securities, analyzed, "If the U.S. shale industry declines and WTI shows relative strength, the cost competitiveness of domestic refiners and the petrochemical industry will increase accordingly."

This content was produced with the assistance of AI translation services.