S-OIL Reports Q2 Operating Loss of 164.3 Billion KRW, Down 81.5% YoY (Comprehensive)

[Asia Economy Reporter Hwang Yoon-joo] S-OIL reduced its second-quarter deficit to around 160 billion KRW. The international oil prices, which had plummeted earlier this year, somewhat rebounded in the second quarter, significantly reducing inventory losses?the biggest cause of the first-quarter earnings shock. In the second half of the year, as demand for petroleum products, which had been depressed due to the COVID-19 pandemic, gradually improves, there are expectations that the refining industry, including S-OIL, will see a performance rebound.

S-OIL announced on the 24th that its consolidated operating loss for the second quarter of this year was preliminarily estimated at 164.38 billion KRW, down 81.5% compared to the same period last year. This is an 83.7% decrease from the record-high first-quarter deficit of 1.0073 trillion KRW. Sales dropped 44.8% year-on-year to 3.4518 trillion KRW. The net loss narrowed to 66.9 billion KRW.

The main reason for the reduced deficit was the lagging effect caused by the rise in Dubai crude oil prices. The lagging effect refers to the increase in refining margins as product prices rise following an increase in international oil prices. In fact, the average price of Dubai crude rose from $33.8 in March to $40.2 in June. As a result, the operating loss in the refining sector decreased to 358.7 billion KRW. The petrochemical segment also showed improved performance. Petrochemical operating profit increased from 66 billion KRW to 91.1 billion KRW, thanks to the strong performance of the olefin-based PP spread, driven by a drop in the raw material naphtha price and increased demand from China. The lubricants segment recorded the highest operating profit of 103.3 billion KRW, supported by low raw material prices.

Other refiners such as SK Innovation, GS Caltex, and Hyundai Oilbank are also expected to significantly reduce their second-quarter deficits compared to the first quarter. The securities industry estimates SK Innovation and GS Caltex’s operating losses to be in the range of 400 to 500 billion KRW. Hyundai Oilbank is projected to record a deficit of less than 70 billion KRW.

The refining industry’s performance rebound is expected to begin in the third quarter. The refining margin, which was negative in the second quarter, has recently been hovering around zero dollars, and demand for petroleum products is gradually improving. A refining industry official said, "Unlike the first half of the year, which was hit hard by COVID-19, signs of recovery in oil demand are emerging, so we expect the refining sector to return to profitability in the second half. However, it will likely take until next year for demand to recover to pre-COVID-19 levels."

Meanwhile, S-OIL stated during a conference call that "the inventory valuation loss in the second quarter was 170 billion KRW, down from 720 billion KRW in the first quarter." An S-OIL official explained, "Most of the second-quarter inventory valuation loss occurred in the refining business and was due to the price difference caused by the rise in international oil prices, not due to inventory volume."

Additionally, they said, "The schedule for the NCC (Naphtha Cracking Center) expansion will proceed as planned." The S-OIL official explained, "Although the COVID-19 pandemic caused restrictions on engineer meetings, delaying the project by 2 to 3 months, this period has been used as an opportunity to improve the project's economic feasibility and completeness, resulting in a solid project progress."

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