SK Rethinks Group III Expansion

SK Lubricants is reconsidering plans to expand their API Group III base oil joint venture in Dumai, Indonesia, a company official told Lube Report Asia.

PT Patra SK, a 65-35 partnership between SK and Indonesian state-owned energy company Pertamina, respectively, was expected to expand its plant by 50 percent this year. However, the market is not very positive, according to Edward Oh, Manager of Base Oil at SK Lubricants.

Last year, SK Lubricants announced plans to increase its Dumai base oil plant from current 490,000 metric tons per year to 740,000 t/y in 2015.

The market situation has changed since the announcement [to expand] and hopefully we will expand up to 50 percent, Oh said. But at this stage, we still do not know when, how and how much we will [expand].

SK Lubricants 2014 revenue was just short of 3 trillion won (U.S. $ 2.7 billion), a 7.1 percent increase over 2013s full year results. Its operating profit shot up 87 percent from 2013 to around 290 billion won year-over-year.

In its fourth quarter, SK recorded an operating profit of 71.4 billion won, a 27 percent uptick from the same period the previous year.Its quarterly revenue was 799 billion won, up 7.9 percent fromthe fourth quarter of 2013.

The operating profit fell slightly as the drop in the global oil prices led to weaker Group III base oil margin, SK Lubricants parent company, SK Innovation, said in a press release earlier this month. However, the market for Group III base oil is anticipated to grow gradually, as there is a rising demand for environmentally-friendly and high-efficient products. Margins for base oil dropped by 2 percent compared to previous quarter, the company added.

Group III base stocks have moved from a position where demand exceeded supply, to one where supply greatly exceeds demand, Infineum International Ltd. said in a report released in December 2014.

Despite global oversupply, Group III outlook is still strong, according to many pundits. Although the BRIC (Brazil, Russia, India and China) economies are experiencing a slowdown, they will continue to drive the demand for mobility and also the need to control pollution, said Thomas Guinot, Neste Oils Global Services Manager of Base Oils.

Under the JVs 2006 agreement, SK Lubricants will be in charge of international marketing and Pertamina domestic marketing.