Korea’s oil refiners see record profit by shifting their focus

Last year was a good one for Korean oil refiners. SK Innovation posted a historic high profit of more than 3 trillion won ($2.6 billion), boosted by non-refining businesses such as petrochemical. S-Oil also posted a record high profit.

According to company filings on Friday, SK posted a profit of 3.23 trillion won, up 63.1 percent year on year. It is the first time an oil refiner surpassed 3 trillion won in operating profit.

Its revenue, however, fell 18.3 percent to 39.52 trillion won, marking the lowest level since 2009, largely due to low oil prices last year, which hovered around $41 a barrel. Still, the company’s operating margins were above 8 percent, the highest since 2004.

“Core contributors to the record high profits are our chemical and lubricants business,” SK Innovation said in a statement Friday. “For the past five years, the company has worked to diversity its profit structure by investing more on petrochemicals and lubricants business.” The company has spent 4 trillion won upgrading facilities for SK Incheon Petrochem and establishing chemical factories in Ulsan and China.

SK Innovation’s chemical affiliate SK Global Chemical and SK Incheon Petrochem, which shifted focus from oil refining to chemical business, each posted record high profit of 918.7 billion won and 374.5 billion won.

SK Incheon Petrochem has shifted its focus to energy and chemical business from oil refining. In 2014, it injected 1.6 trillion won to build up a paraxylene production facility with a capacity of 1.3 million tons. Paraxylene is a high-value added chemical essential to making plastic bottles and polyester.

SK Lubricants, SK Trading International also had solid performances, which led to operating profit of non-refining businesses reaching 2 trillion won.

While the company had announced a 3 trillion won investment plan for 2017, it will also be used to beef up its chemical, petroleum development and battery businesses. The first step, was acquiring ethylene acrylic acid business of U.S. Dow Chemical on Thursday.

It’s not only SK Innovation leaning on non-refining businesses for improved earnings.

S-Oil, which posted earnings Thursday, also saw a record profit. Its operating profit soared 107.1 percent year on year to 1.69 trillion won last year. Its revenue fell 8.8 percent to 16.32 trillion won, also affected by low oil prices, but operating profit to sales rate reached 10.4 percent thanks to increased sales of products such as paraxylene and high-quality base oil.

The nation’s four major oil refiners are expected to have combined profit of roughly 8 trillion won last year, a jump of more than 70 percent year on year. GS Caltex and Hyundai Oilbank are yet to release last year’s earnings but local brokerage firm Korea Investment & Securities projects that they posted 2.1 trillion won and 970 billion won profits respectively.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]