The domestic refining and petrochemical sectors are experiencing mixed results for the third quarter. While refiners have reported record earnings due to strong refining margins and a robust lubricants business, the petrochemical sector is facing renewed losses after a brief recovery earlier in the year.
According to industry reports on November 5, South Korea's four major refiners—SK Innovation, GS Caltex, S-Oil, and HD Hyundai Oilbank—achieved a combined operating profit of 3.4146 trillion won in their refining businesses for the third quarter of this year.
This surge in profits is attributed to heightened geopolitical uncertainties in the Middle East, which have led to a shortage of oil products and strong refining margins. Delays in the recovery of oil production and exports from the Middle East have tightened supply, allowing refiners to maintain high margins and secure profitability.
The lubricants business also contributed positively. GS Caltex reported a record operating profit of 448.9 billion won in its lubricants division for the third quarter, a 221% increase compared to the same period last year. SK Innovation's lubricants subsidiary, SK Enmove, saw its operating profit soar by 593.2% to 1.0906 trillion won, driven by a spike in lubricants spread due to supply shortages from production halts in the Middle East.
In contrast, the petrochemical sector, which had posted profits in the first half of the year due to the effects of the Middle East conflict, has turned downward in the third quarter. The disappearance of the 'lagging effect'—the benefit from using raw materials acquired at lower prices before the conflict—has contributed to this decline.
LG Chem, which announced its earnings on the same day, reported an operating loss of 175.6 billion won in its petrochemical division for the third quarter. The increase in raw material prices, which was not fully reflected in product selling prices, along with rising transportation costs and currency depreciation, has weighed on profitability.
GS Caltex also reported a 26% increase in sales to 2.42 trillion won in its petrochemical division for the third quarter, but recorded an operating loss of 1 billion won.
LOTTE Chemical, which is set to announce its earnings soon, is expected to report an operating loss in the range of 200 billion won, while Kumho Petrochemical's operating profit is projected to decline by about 72% to 95 billion won compared to the previous quarter.
The challenge is that the petrochemical sector's poor performance is unlikely to be resolved in the short term. China continues to expand its production capacity for basic petrochemical feedstocks like ethylene and propylene, intensifying competition in the global market. Structural oversupply remains a concern.
An industry insider noted, "While refiners can maintain high refining margins due to supply disruptions in the Middle East for the time being, it will be difficult for the petrochemical sector to recover profitability. The longer restructuring is delayed, the greater the burden on companies, making active government mediation and swift business reorganization urgent."
* This article has been translated by AI.
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