Lubricants behind local refineries profitability

Local refineries recorded a profitable second quarter backed by strong sales of lubricants. According to the industry, the four major refineries here recorded 761.8 billion won ($651.8 million) in operating profits in the lubricating oil sector.

S-Oil topped the list with 284 billion won followed by SK Innovation with 226.5 billion won, GS Caltex, 159.2 billion won and Hyundai Oil Bank, 92.1 billion won

The strong profitability was due to lubricants being less affected by market conditions and the rise in environment friendly awareness, although they are considered a side-business for refineries.

S-Oil recorded 659.6 billion won in sales of lubricating oil with an operating profit of 284.5 billion won or 43.1 percent of the company’s total, similar to GS Caltex’s 39.2 percent, Hyundai Oil Bank’s 32.7 percent and SK Innovation’s 29.7 percent. On the other hand, the four companies operating profits from oil refining stood at a mere 1 percent to 3 percent.

The sharp rise in demand for lubricants brought on the surge in profitability. According to the Korea National Oil Corp. (KNOC) in the first half of the year lubricating oil consumption recorded 3.78 million barrels, an increase of 69.7 percent from the same period in 2020.

The demand for gasoline and diesel drastically dropped due to the Covid-19 pandemic. However, the demand for lubricating oil products, which needs to be applied to machinery regularly over long periods of time, did not change,. Meanwhile, nations worldwide are searching for more eco-friendly, fuel efficient ways to reduce carbon emissions which has led to the surge in demand.

According to KNOC, 8.83 million barrels were sold in the first half of this year, a slight decline from the 9.25 million barrels the year before, however, the price for each barrel rose to $125.87 from $79.34 increasing total sales to $1.11 billion from $734 million in 2020.

“Due to the COVID-19 pandemic, demand for all petrochemical products declined and refineries advanced their routine maintenance to reduce their rate of operations,” an industry official said. “This year the price of lubricating oil increased but this is due to a lack of supply from the reduction of operations.”