SK Innovation sees profit plummet

SK Innovation’s net profit more than halved in the first quarter this year, with the company blaming low margins from its refining business.

The company reported 211.5 billion won ($182.5 million) in consolidated net profit for the January to March period on Thursday, a 55.3 percent decline from the previous year. It also said that operating profit for the quarter fell 53.5 percent to 331.1 billion won.

The results fell short of the analyst consensus of 342.4 billion won in operating profit compiled by data tracker FnGuide.

Citing weak margins, the company said its refining business recorded 6.3 billion won in operating losses. It was able to curb further losses thanks to rises in oil prices.

The results were an improvement from the previous quarter, when it recorded 557.8 billion won in operating losses from the business.

The company’s petroleum refining business accounts for 70 percent of its total sales while its chemical business takes up 20 percent.

SK Innovation said gasoline and diesel margins were weak in the quarter due to concerns of a global economic slowdown despite rises in oil prices from geopolitical risks such as U.S. sanctions on Iran.

The company forecast improved refining margins later in the year with stronger demand for diesel with the implementation of the International Maritime Organization’s (IMO) environmental regulations next year and seasonal increase in demand for gasoline.

The IMO will enforce a sulfur cap of 0.5 percent on shipping fuel content from the start of next year compared to the current 3.5 percent cap. Shipping vessels are expected to use distillate fuel that includes diesel.

SK Innovation pre-emptively invested in a desulfurization facility in 2017 to prepare for the regulation changes.

Meanwhile, the company’s chemical business was able to offset total losses as it reported 320.3 billion won in operating profit. The business improved from the previous quarter thanks to inventory profit from a rise in naphtha prices.

SK Innovation shares ended 2.58 percent lower on Thursday at 188,500 won.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]