Oil Refining and Chemicals Forecast Q1 Loss... 'Post-Semiconductor' Battery Also Slows Down

[Asia Economy Reporter Park So-yeon] Last year, the domestic refining and chemical industries, which suffered from poor performance due to a downturn in business conditions, are now facing compounded adverse factors including the impact of the novel coronavirus infection (COVID-19) and the recent plunge in international oil prices, forecasting further deterioration in their first-quarter results.

According to the securities industry on the 15th, SK Innovation's operating loss in the first quarter is expected to reach up to 400 billion KRW, and S-Oil's operating loss is forecasted at 320 billion KRW.

With the combined effects of COVID-19 and the sharp drop in international oil prices, these two companies are projected to suffer the greatest impact on their first-quarter earnings among major domestic firms.

SK Innovation's first-quarter operating profit forecast has been revised downward by 77.9% compared to a month ago, and S-Oil's by 76.5%, with their stock prices also significantly falling following the oil price crash.

Earlier this year, the refining margin showed signs of recovery, raising expectations for improved performance in the refining industry; however, due to COVID-19, refining margins have plunged again.

From mid-February, demand reduction began in earnest, centered on China, and as COVID-19 expanded into a pandemic, the decline in demand is expected to widen further.

An industry insider from the refining sector expressed concern, stating, "The sharp drop in international oil prices has caused inventory valuation losses, global demand has decreased due to COVID-19, and worsening refining margins are all combining to further deteriorate the business environment."

The petrochemical industry also experiences some benefits from the decline in raw material naphtha (naphtha) prices, but faces adverse effects from demand contraction due to COVID-19.

LG Chem's first-quarter operating profit consensus is estimated at 182.6 billion KRW, a 33.71% decrease compared to the same period last year.

In the fourth quarter of last year, LG Chem recorded an operating loss of 27.5 billion KRW, which was due to a provision of approximately 300 billion KRW related to an energy storage system (ESS) accident.

Even when excluding this one-time provision, the operating profit for the fourth quarter of last year was 275.7 billion KRW, and the forecast indicates a decrease of over 90 billion KRW in operating profit.

Lotte Chemical's first-quarter operating profit is also expected to decline by about 55% year-on-year to 131.3 billion KRW. This forecast was revised downward by about 40% compared to a month ago, and is expected to fall further due to the recent accident at the Daesan plant.

The electric vehicle battery and parts business, which is regarded as the 'post-semiconductor' sector, is also feared to suffer domino effects due to COVID-19.

As automobile sales, the main demand source, decline, concerns over worsening orders are growing, and factory operations may face disruptions.

According to the China Association of Automobile Manufacturers, automobile sales in China in February were 310,000 units, a 79.1% decrease compared to the same month last year.

With COVID-19, which was centered in Asia including China and Korea, recently expanding into a pandemic, a decline in automobile demand is also anticipated in major markets such as Europe and the United States.

The earnings outlook for the three major domestic battery companies?LG Chem, Samsung SDI, and SK Innovation?that are focusing on expanding electric vehicle battery orders has also darkened.

Samsung SDI is also expected to report poor first-quarter results due to seasonal factors and the impact of COVID-19. Kim Hyun-soo, a researcher at Hana Financial Investment, forecasts Samsung SDI's first-quarter operating profit to decrease by 60% year-on-year to 47.8 billion KRW, expecting profitability improvement in the second quarter.

The battery industry is also reportedly facing some difficulties in workforce management due to various countries' measures such as entry restrictions following the COVID-19 outbreak.

LG Chem has electric vehicle battery production bases in the United States, China, and Poland; Samsung SDI in China and Hungary; and SK Innovation in the United States, China, and Hungary.

Hungary began blocking entry of foreigners who visited Korea, China, Italy, and Iran starting from the 12th, and Poland also banned foreign entry from the 15th and requires a 14-day quarantine for its nationals upon entry.

LS Cable & System planned to list its subsidiary LS EV Korea on the KOSDAQ at the end of this month to expand its electric vehicle parts business but has withdrawn the listing.

This is interpreted as a response to the rapidly deteriorating market conditions, with the KOSPI plunging to the 1700 level due to the shock of COVID-19.

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