S-Oil reported a strong increase in operating income for its base oil business, while SK Lubricants posted lower operating profit, for the quarter ending Sept. 30.
S-Oil’s base oil business posted third quarter operating income of 96.6 billion South Korean won (U.S. $85.3 million), up 87% from 51.6 billion won in 2019’s third quarter. Sales revenue for the quarter declined 34% to 265.6 billion won, down from 403.1 billion.
Price spreads in Asia between base oil and high-sulfur fuel oil narrowed during the third quarter – compared to the first and second quarters of 2020 – due to a rise of feedstock prices, despite a slow but steady rebound in base oil demand, the company noted in its earnings presentation. However, the product spread was wider, at $40.30 per barrel, compared to the third quarter of 2019, when it was just shy of $24/bbl.
S-Oil makes API Group II and Group III base oils at its plant in Onsan, South Korea. The spread that the company cited is an aggregated number that also entails Group I base oils. In its fourth quarter outlook, the company said it expects spreads “to maintain the current healthy level on limited supply, thanks to maintenance shutdowns at major plants and increasing of demand for high-quality finished lubricants in Asia.”
SK Lubricants reported an operating profit of 70.6 billion won for the third quarter, down 25% from 93.6 billion won in 2019’s third quarter, according to an earnings report by SK Innovation, the refiner’s parent company. Sequentially – reflecting recovery from the COVID-19 pandemic – operating profit increased 89% from 37.4 billion won in the second quarter, “due to increase in sales volume as demand improved from all regions, while margins were weaker due to higher costs.”
Sales fell to 602.3 billion won in the third quarter, down 26% from 811.4 billion won in the same period of 2019.
The company said it expects the 2021 base oil market to gradually improve, with better demand due to stronger environmental regulations and less impact from COVID-19.
The company makes Group II and III base oil at its plant in Ulsan, South Korea. The SK-Pertamina joint venture makes Group III base oil in Dumai, Indonesia, and the SK-Repsol joint venture produces Group II and III base oil at a plant in Cartagena, Spain.