4Q Tough for SK, S-Oil

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South Korean base oil refiners SK Lubricants and S-Oil reported decreases in operating income and revenues for the quarter ending Dec. 31, compared to a year earlier. Each companys full year operating income was also down from 2011, with only SK Lubricants posting an increase in revenue.

SK Lubricants reported an operating loss of 28.6 billion South Korean won (U.S. $26.1 million) for the fourth quarter, down from a 94.5 billion won operating profit in the year-earlier period. For the full fiscal year 2012, SK Lubricants posted 263 billion won in operating income, down 48.5 percent from 510.9 billion won for 2011.

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Sales of 669.1 billion won for the fourth quarter were down 8.4 percent from 2011s fourth quarter. For the full year 2012, revenue for SK Lubricants reached 2.9 trillion won, up slightly from 2.7 trillion won in 2011.

Parent company SK Innovation posted an 89.1 billion won operating profit for the fourth quarter, on sales of 375.1 billion won.

In its earnings presentation, SK attributed the sharp decline in operating profit to weak base oil demand, which led to a decrease in the sales volume and lower margins during the fourth quarter. The company said it expects base oil prices to gradually bottom out as lubricant product demand is expected to recover in preparation for the summer 2013 driving season.

SK operates a 21,000 barrel per day API Group II and Group III base oil refinery in Ulsan, South Korea. The SK-Pertamina joint venture plant in Dumai, Indonesia, of which SK owns a 65 percent share, has about 7,000 b/d of Group III capacity.

SK Innovation and JX Nippon Oil & Energy are building a joint venture base oil plant at SKs Ulsan complex. About 550,000 metric tons per year of Group III base oil capacity went on stream in the second half of 2012, with an additional 580,000 tons per year of Group II capacity projected for this year. And SK Lubricants is partnering with Repsol YPF on a new 13,000 b/d Group II/III base oil plant at Repsols Cartagena, Spain, refinery. It is scheduled to begin production in 2014.

S-Oils lube segment posted fourth-quarter operating profit of 29.8 billion won ($27.3 million), down 84.2 percent from the previous years fourth quarter revenue of 188.1 billion won. For all of 2012, operating income reached 333.7 billion won, down from 717 billion won for 2011.

Revenue for the fourth quarter reached 478.5 billion won, down 27.4 percent from 659 billion won in 2011s fourth quarter. For all of 2012, sales totaled 2.3 trillion won, down slightly from 2.5 trillion won for 2011.

In its earnings presentation, S-Oil said it expects the lube market to rebound toward the second half of 2013, with gradual recovery of demand growth due to improvement of automobile sales in major lube markets, such as India, China and the United States.

S-Oils Onsan, South Korea, refinery has 15,000 b/d Group III, 20,000 b/d of Group II and 500 b/d of Group I capacity.

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