Refiners’ stocks suffer despite rising oil prices

On the local stock market, rising international oil prices have had the unexpected effect of driving down refiners while putting shipbuilders in the ascendant.

Oil prices have been creeping up since the beginning of the year, with the spot price of Dubai crude climbing from $105.91 per barrel on Jan. 3 to $124.22 as of Wednesday, according to the Korea Center for International Finance.

However, the stock prices of leading refiners such as SK Innovation, S-Oil and GS Caltex have been falling since the end of last month - moving in the opposite direction of oil prices. No. 1 refinery SK Innovation dropped 10.8 percent between Feb. 15 and yesterday’s session.

Normally, refineries see their stock prices rise in line with international oil costs as they benefit from selling more expensive oil-based products despite having purchased the oil prior to the hike. However, the tide has turned for local refiners since the middle of last month.

“Prices of oil-based products are rising at a slower rate than oil, so the profit margin for refining [crude into oil-based products] is falling,” said Park Jae-chul, a sector analyst at KB Investment and Securities. “Only when oil prices drop will refineries’ margins improve.”

On the other hand, the climbing price of oil has turned an unlikely batch of companies into attractive investments.

Daewoo International has seen its stock price jump by 22.9 percent this year, which experts attributed to the greater perceived value of the company’s “alternative fuel” businesses.

“The stock prices of general trading companies like Daewoo International and LG International have been rising in reflection of investors’ expectations that progress in their resource development operations will lead to better performances,” said Kwon Hae-soon, an analyst at Mirae Asset Securities.

Major shipbuilders such as Hyundai Heavy, which produces ships that run on alternative fuel like liquefied natural gas, have been attracting investors’ interest as market demand for these specialized ships is expected to increase. This year, Hyundai Heavy stocks have climbed 28.5 percent between Jan. 2 and yesterday.

“As oil prices rise, [stocks] have reflected the expectation that oil-exporting Middle Eastern countries will expand their investments in refineries and chemical plants, which in turn would increase the number of overseas building projects won by domestic builders,” said Kang Seung-min, a construction sector analyst at NH Securities.

By Lee Jung-yoon [joyce@joongang.co.kr]