Key Highlights :
The earnings outlooks of local refineries are expected to be somewhat underwhelming in the second quarter, due to weakening demand caused by the global economic downturn, according to market watchers. Refining margins, the difference in value between the final products produced by a refinery and the raw input materials including crude oil, have been declining, and the impact of the unexpected continuation of high oil prices has dissipated.
S-Oil, a petroleum and refining company, suffered a 61.3 percent year-on-year drop in first-quarter operating profit to 515.7 billion ($388 million). Their quarterly decline is expected to be sharper in the April-June period, as indicated by refining margins plummeting to the $2 range in April, down from over $13 in January. The April figure is far lower than the market consensus breakeven point range of between $4 and $5.
Market watchers say the industry's slowdown is attributable to weak diesel demand, due in large part to a decrease in the number of cargo trucks carrying goods to ports for shipping. Over 70 percent of diesel is used by truckers, but not as many shipping orders are made due to the recent economic recession woes in Europe and the U.S. The widespread negative sentiment will not be countered unless a faster-than-needed reopening of the Chinese economy follows.
Summer vacation fuel consumption usually bolsters sales in the late spring through summer months, but not as many people are choosing to drive long distances so as to reduce spending. Hi Investment & Securities researcher Jun Yoo-jin said the steady downtrend in refining margins is not showing any signs of bouncing back and will remain as they are for the next few months.
The outlook for local refineries in the second quarter is not looking good, as demand for diesel and gasoline continues to be weak due to the global economic downturn. Refining margins have been declining, and the impact of the unexpected continuation of high oil prices has dissipated. Truckers are not making as many shipping orders due to the recent economic recession woes in Europe and the U.S., and fewer people are choosing to drive long distances so as to reduce spending. The outlook for the industry is not expected to improve anytime soon, and refining margins are not expected to bounce back in the near future.