SK Innovation Posts 1.5 Trillion KRW Operating Profit in Q3 'Turnaround'... Battery Operating Loss Hits Record Low

Sales of 19.8891 trillion KRW · Operating Profit of 1.5631 trillion KRW

SK Innovation recorded sales of KRW 19.8891 trillion and an operating profit of KRW 1.5631 trillion in the third quarter of this year, turning to a profit compared to the previous quarter.

In the third quarter earnings announcement held on the 3rd, SK Innovation stated that sales and operating profit increased by KRW 1.1619 trillion and KRW 1.6699 trillion respectively compared to the previous quarter.

The turnaround in performance was driven by the petroleum business. Due to OPEC+ production cuts in the third quarter, oil prices and refining margins rose together, significantly improving operating profit. Operating profit recorded KRW 1.1125 trillion, an increase of KRW 1.5237 trillion compared to the previous quarter. The chemical business achieved an operating profit of KRW 237 billion, up KRW 66.8 billion from the previous quarter, thanks to increased inventory-related gains from rising naphtha prices, inventory effects from raw material price increases in the lubricants business, and profitability improvements from increased productivity in the battery business.

The lubricants business posted an operating profit of KRW 261.7 billion, improving by KRW 1.8 billion from the previous quarter, reflecting inventory effects from rising raw material prices despite a decrease in base oil sales volume. The petroleum development business recorded an operating profit of KRW 79.4 billion, up KRW 11.2 billion from the previous quarter, due to reduced variable costs from decreased production volume.

The battery business recorded the smallest-ever operating loss, raising expectations for a return to profitability. Battery business sales in the third quarter increased by 45% year-on-year to KRW 3.1727 trillion, with an operating loss of KRW 86.1 billion. SK On reduced its losses from KRW -344.7 billion in the first quarter and KRW -131.5 billion in the second quarter. The Advanced Manufacturing Production Credit (AMPC) amount for the battery business in the third quarter, under the U.S. Inflation Reduction Act (IRA), was KRW 209.9 billion, significantly exceeding the combined KRW 167 billion for the first half of the year, driving profit improvement.

The materials business recorded an operating profit of KRW 3.5 billion, improving by KRW 3.6 billion from the previous quarter due to sales volume increases from major customers.

SK Innovation stated, "In the third quarter, we achieved a consolidated operating margin of 7.9%, an 8.4% improvement from the previous quarter, driven by profit growth across all business sectors including refining, chemicals, lubricants, and battery business productivity improvements along with the U.S. Advanced Manufacturing Production Credit (AMPC) reflection." It added, "The battery business aims to return to profitability in the fourth quarter through continued productivity improvements at new overseas plants, increased AMPC benefits, and cost reductions."

SK Innovation expects solid performance in the fourth quarter due to strong conditions in the petroleum business. It said, "Despite concerns over demand contraction and the U.S. Federal Reserve's continued high interest rate policy, the market is expected to remain strong due to low inventory levels, increased winter stockpiling demand, and supply-demand imbalances from recovering demand in China."

In the chemical business, polyethylene (PE) and polypropylene (PP) margins are expected to shrink due to rising naphtha prices, but demand growth toward the year-end is expected to keep the market stable. Paraxylene (PX) margins are expected to be limited in decline despite demand reduction after the driving season, as large-scale Chinese facilities continue to operate at high rates.

The lubricants business is expected to see margin decreases due to seasonal demand decline, but the drop is expected to be limited due to reduced supply of unconverted residual oil (UCO) amid strong diesel prices. The petroleum development business is expected to see growth in scale and profits with the full-scale crude oil production from the '17/03 block.' Peak daily production is expected to reach about 29,500 barrels, with annual sales of approximately KRW 500 billion and operating profit around KRW 250 billion. Additional exploration block development will continue.

The battery business is expected to face short-term slowdown in electric vehicle demand growth and metal price declines, but profitability is expected to continue improving through productivity gains at new overseas plants, cost reductions, and increased AMPC benefits. The materials business is also expected to improve profitability in the fourth quarter through increased sales volume from major customers, with ongoing efforts to diversify customers.

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