South Korean oil refiners, led by SK Innovation Co., are expected to report stronger-than-expected earnings for the third quarter of the year on the back of good refining margins and solid demand for key products, industry sources said Thursday.
The benchmark Singapore complex gross refining margin (GRM) hovered around US$8 per barrel in August, up from $7.40 in July, $6 in May and $5.80 in March, according to market data. Singapore is the regional trading hub of the benchmark Dubai crude.
The GRM hit a six-year high of $10 per barrel in late August, although it fell back to the $8 range last month.
The margin is the difference between the total value of petroleum products coming out of an oil refinery and the cost of crude and related services, including transportation.
Usually, a South Korean refiner can generate profit if the refining margin exceeds $5 per barrel.
Rising cracking margins are expected to help local refiners rack up sound third-quarter earnings, observers here said.
"Even during the non-peak season, the margin remained high because of high demand amid tight supply," said Jun Yu-jin, an analyst at IBK Investment & Securities. "We can expect to see the margin stay higher down the road."
Analysts expected refining margins will remain strong due to high demand, while the supply of oil related goods remains limited.
South Korean oil refiners logged weaker-than-expected earnings in the April-June period due to low oil prices and inventory losses.
SK Innovation posted a net profit of 292 billion won ($262 million) in the second quarter, more than half the profit of 626 billion won a year earlier.
For the third quarter, SK Innovation's operating income is estimated at 839 billion won, nearly doubling from a year earlier.
GS Caltex Corp., the No. 2 refiner in South Korea, also reported that its second-quarter earnings dipped 71 percent on-year to reach 135 billion won, with operating income also down 73 percent to 210 billion won over the cited period.
But its third quarter operating income is forecast at 388 billion won.
Refiners in South Korea racked up record earnings in 2016 largely due to improved cracking margins, inventory gains and good demand for petrochemical products.
The country's four major oil refiners reported a combined operating income of 8.03 trillion won last year, an all-time high. (Yonhap)