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Oil crash dims Q1 earnings outlook for refiners, chemical firms

All News 09:50 April 22, 2020

SEOUL, April 22 (Yonhap) -- South Korean brokerage houses have sharply cut their first-quarter earnings outlook for major refiners and chemical makers on tumbling oil demand and prices due to the coronavirus outbreak, a market tracker said Wednesday.

According to FnGuide, 13 oil refiners, gas firms and chemicals manufacturers are estimated to post a combined operating loss of about 660 billion won (US$535 million) for the January-March period.

The latest figure represents a sharp turnaround from an operating income of 1.65 trillion won forecast three month earlier and an operating profit of 431 billion won projected a month ago.

Of the 13 businesses, 11 are projected to suffer weaker earnings or switch to a loss for the first quarter. The companies cover those for which three or more local securities companies have put forward first-quarter forecasts.

Top oil refiner SK Innovation Co. is expected to register an operating loss of 733 billion won for the first quarter, compared with an operating income of 331 billion won a year earlier.

Oil crash dims Q1 earnings outlook for refiners, chemical firms - 1

Another major refiner, S-Oil Corp., controlled by Saudi Aramco, is predicted to swing to an operating loss of 477 billion won.

Korea Petrochemical Ind. Co. and Lotte Chemical Corp. are estimated to see their first-quarter operating income plunge 94 percent and 86 percent on-year, respectively.

The 13 companies are projected to see a combined operating income of 4.04 trillion won for all of 2020, down about 25 percent from a year earlier. The figure is also down 49 percent from an estimate made three months earlier and 29 percent from that a month earlier.

The drastic downgrade comes as the coronavirus pandemic has sent oil prices cratering, worsened their profit margins and sparked a sharp drop in demand for their products.

U.S. West Texas Intermediate (WTI) crude futures for May delivery closed at minus $37.63 per barrel in New York trading Monday, lapsing into negative territory for the first time in history.

Reflecting poor earnings forecast, the average share price of the 13 firms has sank nearly 14 percent from the start of the year, with SK Innovation suffering a 34 percent nosedive.

Analysts said oil refiners will likely fare worse down the road as their refining margins, or the difference in prices of their products and crude used to make them, are expected to remain in negative terrain for the time being.
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