War Divides Fortunes: Huge Earnings for Refiners, Big Losses to Petrochemicals
Due to the aftermath of the war in the Middle East and fluctuations in the global supply chain, the performance of the domestic oil refining and petrochemical industries diverged significantly in the third quarter (July to September) of this year. Oil refiners generated a quarterly operating profit
The aftermath of the war in the Middle East has caused a sharp divide in fortunes between the domestic oil refining and petrochemical industries in the third quarter of the year. Oil refiners made a quarterly operating profit of 5.9 trillion won, while petrochemical companies recorded deficits.
Oil refiners benefited from rising refining margins and a shortage of base oil, driving their profits. SK Innovation, a major player, generated nearly 2.3 trillion won in profit, with other major refiners like S-Oil, GS Caltex, and HD Hyundai Oilbank also exceeding 1 trillion won each. The performance gap is expected to persist, as global supply disruptions due to geopolitical factors like the blockade of the Strait of Hormuz and attacks on Russian refining facilities have kept refining margins high.
Petrochemical companies, on the other hand, struggled to pass on increased raw material costs to consumers, leading to losses. Lotte Chemical, LG Chem, and Hanwha Solutions all reported deficits in the third quarter. Even some traditionally resilient petrochemical divisions, such as HD Hyundai Oilbank, S-Oil, and GS Caltex's chemical division, recorded losses.
The petrochemical industry's decline was due to continuous increases in naphtha prices and oversupply from China, creating a phenomenon known as 'reverse lagging' where high-priced raw materials previously purchased were now considered costs.
Despite a recent drop in international oil prices due to eased tensions, the outlook for the two industries diverges. Oil refiners expect high refining margins to remain for now, due to delays in the normalization of refining facilities and high demand for heating oil during winter. However, petrochemical companies face challenges in achieving a short-term earnings rebound, as they struggle with depleted raw material inventories and continuous oversupply in China.
The beginning of a major petrochemical facility, the Shaheen Project, in January next year is expected to further intensify the oversupply issue.
Written by urgent.news from BusinessKorea's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
