Earnings Jump for SK, Plunge for Hyundai Shell


Earnings Jump for SK, Plunge for Hyundai Shell

SK Innovation reported a large increase in operating profit for the full year but flat fourth quarter profit for its base oils and lubricants business , while operating profit at Hyundai Shell Base Oil fell steeply for the full year and fourth quarter, with a drop in base oil demand cited as a key factor.


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SK Innovation’s base oils and lubricants segments reported ₩1.1 trillion (U.S. $869 million) in operating profit for 2022, a 16% increase from ₩919 billion in 2021. Full-year 2022 sales jumped 50% to ₩4.7 trillion, compared to ₩3.1 trillion.

For the fourth quarter, the segment’s operating profit was ₩268.4 billion, virtually unchanged from the same period in 2021. Sequentially, segment operating profit fell 20% from ₩336 billion in the third quarter, which the company said in its earnings presentation occurred “despite improved margins, backed by lower costs, as bearish demand depressed base oils and inventory related losses took a toll.”

Fourth-quarter sales rose 25% to ₩1.3 billion, compared to ₩1 billion.

The company said it expected the market to be bullish in 2023 as sanctions against Russia and “gas to oil” continue to tighten base oil supply.

The company makes Group III and II base oils at its plant in Ulsan, South Korea. A joint venture with Pertamina makes Group III base oil in Dumai, Indonesia, while another with Repsol produces Group II and III base oil at a plant in Cartagena, Spain.

Hyundai Shell Base Oil

In 2022, Hyundai Shell Base Oil, the joint venture between Hyundai and Shell, posted operating profit of ₩125.8 billion, a 58% fall from ₩301.4 billion operating profit for 2021. Sales for last year reached ₩1.3 trillion, a 15% increase from ₩1.1 trillion.

In the fourth quarter,Hyundai Shell Base oil reported ₩29.6 billion operating profit, a 36% drop from ₩46.4 billion. Fourth-quarter sales increased 5% to ₩330.2 billion, compared to ₩315.4 billion.

Hyundai Oilbank, which owns 60% of the joint venture, said in its earnings presentation that base oil margins weakened in the fourth quarter due to continued oversupply in the region because of sluggish demand in China. According to the company’s earnings presentation, the spread in the fourth quarter for API Group II 150 neutral oil was $170 per metric ton in the fourth quarter, 23% higher than $138 in the same period in 2021, while the spread for Group II 500 neutral was $219/t, 41% lower than $373/t in 2021’s fourth quarter.

In its outlook for this year’s first quarter, the company said it expected base oil supply to decrease due to regular maintenance at some companies’ base oil plants, but that it expected demand to then remain flat due to continued sluggish base oil demand. Longer term out to the second quarter, the company projected strong base oil growth due to supply increases following the end of regular maintenance and recovery in base oil demand.

The joint venture between Hyundai Oilbank and Shell produces only API Group II base oil at its plant in Daesan, South Korea.

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