Koreas SK Lubricants and S-Oil both recorded higher operating profits in their base oils and lubricants businesses in 2016, though rising crude prices slightly depressed their fourth quarter performances.
SK Groups SK Lubricants earned an annual operating profit of 468.5 billion won (U.S. $408 million), the base oils refiner and finished lubes marketer said Friday. The segments profit was a record-high result for the company, representing a 59 percent increase from its previous years 295 billion won.
Annual sales revenue, however, was 2.5 trillion won - 3.3 percent down from 2.6 trillion won a year ago. In its fourth quarter, SK Lubricants posted 661.3 billion won in sales, a 2.8 percent drop from 680.6 billion won in the same quarter of 2015. Quarterly operating profit shrank 24 percent year-on-year to 86.4 billion won.
SK Lubricants said it expects favorable margins in its base oils segment and higher sales volume in 2017. We believe the margin will be strong again, similar to the level of 2016, said company official Shin Incheol during an earnings report conference call last week. And we will expand our sales volume by between 5 percent and 7 percent year-on-year.
S-Oils 2016 base oils operating income grew 34.5 percent to 418.5 billion won in 2016, up from approximately 311 billion won in 2015. Revenue for the year was 1.3 trillion won, down 1.9 percent from 1.3 trillion won a year ago.
In S-Oils fourth quarter, its revenue grew 23.8 percent to 320.5 billion won. Operating income was 65.5 billion won, up 3.9 percent from 63.0 billion won.
The Seoul-based refiner anticipated that the lube base oil margin is likely to [be restored] thanks to limited capacity addition in 2017 and steady demand growth for high-quality products in the United States and Europe.
Changes in exchange rates had a positive effect on the companys operating income last year, said Bang Juwan, an S-Oilofficial, during the companys earnings conference call. In the fourth quarter alone, our lube base oil business gained 6 billion won from a higher exchange rate and 20 billion won from inventory valuation.
S-Oils Onsan refinery has capacity to produce over 2 million tons of API Group I, Group II and Group III base oils per year.
SK Lubricants makes just shy of 2 million t/y of Group II and Group III in Ulsan.