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Refiners' continued negative margin dims earnings outlook

All News 08:40 August 11, 2020

SEOUL, Aug. 11 (Yonhap) -- South Korean oil refiners' key profitability measure has remained stuck in negative terrain for weeks, clouding their earnings outlook, industry sources said Tuesday.

The benchmark Singapore complex gross refining margin (GRM) was estimated at minus US$0.30 per barrel for the first week of August, marking the fourth straight week of negative margins.

The profit yardstick amounted to minus $0.10 per barrel last week, compared with minus $0.30 in the fourth week of July and minus $0.50 the third week of last month.

Refining margins are linked to international oil prices. Higher crude prices mean greater margins, or the difference between the total value of petroleum products and the cost of crude and related services.

Refiners' continued negative margin dims earnings outlook - 1

Usually, South Korean refiners turn a profit if the refining margin stays above at least $4 per barrel.

South Korean oil refineries' margins have been hovering below the break-even point since October last year, meaning they have been losing money for 10 consecutive months.

Worsening refining margins, combined with tumbling oil demand due to the coronavirus pandemic, hit their bottom lines hard in the first half of the year.

Industry leader SK Innovation Co. and three other players posted a combined operating loss of 4.38 trillion won ($3.69 billion) in the first quarter of the year.

Their operating loss sharply narrowed to 700 billion won in the second quarter on stabilizing crude prices and easing of coronavirus lockdowns in several countries.

Yet analysts painted a gloomy picture of oil refiners' earnings as refining margins are forecast to remain anemic in the months ahead due to the fallout from the COVID-19 outbreak.

"There is a high possibility of their earnings worsening in the third quarter as margins remain sluggish and international crude prices have stopped their upturn," Son Ji-woo, an analyst at SK Securities, said.

For the whole of last year, the four local oil refiners chalked up a combined operating income of 3 trillion won.
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