SEOUL– South Korean oil refiners, led by SK Innovation Co., are expected to report stronger-than-expected earnings for the third quarter of the year on the back of good refining margins and solid demand for their key products, industry sources said Tuesday.

The benchmark Singapore complex gross refining margin (GRM) hovered around US$8 per barrel last month, up from $7.40 in July, $6 in May and $5.80 in March, according to industry sources. Singapore is the regional trading hub of the benchmark Dubai crude.

The margin is the difference between the total value of petroleum products coming out of an oil refinery and the cost of crude and related services, including transportation.

Usually, a South Korean refiner can generate profit if the refining margin exceeds $5 per barrel.

Rising cracking margins are expected to help local refiners rack up sound third-quarter earnings, analysts said.

“The expansion of refining facilities around the globe has been limited, but demand for petrochemical goods remained high,” said Ha Jun-young, an analyst at HI Investment & Securities.

Analysts said prices of oil-related goods may continue to rise as refinery facilities located in the Hurricane Harvey-hit Gulf of Mexico remained partly disrupted.

South Korean oil refiners logged weaker-than-expected earnings in the April-June period due to low oil prices and inventory losses.

SK Innovation posted a net profit of 292 billion won ($262 million) in the second quarter, more than halved from a profit of 626 billion won a year earlier.

GS Caltex Corp., the No. 2 refiner in South Korea, reported that its second-quarter earnings dipped 71 percent on-year to reach 135 billion won, with operating income also down 73 percent to 210 billion won over the cited period.

Refiners in South Korea racked up record earnings in 2016 largely due to improved cracking margins, inventory gains and solid demand for petrochemical products.

The country’s four major oil refiners reported a combined operating income of 8.03 trillion won last year, an all-time high.

 

Source: Yonhap News Agency