SK Innovation expects solid refining margins to continue in Q2

SEOUL :SK Innovation Co Ltd, owner of South Korea’s top refiner SK Energy, said on Monday it expects solid refining margins to continue in the second quarter backed by firm demand.

The company posted an operating profit of 625 billion won ($454 million) for the January-March period, versus a 375 billion won profit a year earlier. That compared with an average analyst forecast of 466 billion won.

First-quarter revenue fell 1.5 per cent to 18.9 trillion won from the same period a year earlier.

“We expect to see solid refining margins in the second quarter backed by continued cuts by OPEC+ and improved travel demand,” SK Innovation said in a statement.

The refiner said it plans to carry out maintenance work for its No.4 crude distillation unit (CDU) in the second quarter.

Analysts say rising oil prices benefited the company’s petrochemical business, helping to offset losses from its battery unit SK On, which has been facing weaker electric vehicle (EV) battery demand.

SK On, which supplies to Ford Motor Co, Volkswagen and Hyundai Motor among others, widened its operating loss to 332 billion won in the first quarter from 18.6 billion won in the previous quarter due to fewer EV battery shipments.

SK On’s major automaker customer Ford earlier this month said it delayed the planned launches of three-row EVs in Canada and its next-generation electric pickup truck built in Tennessee. Ford executives have said they will not launch the next generation of EVs until its EV business is profitable.

Analysts noted that SK On, which currently produces only pouch-type battery cells, should broaden its product lineup to better meet the needs of automakers which are diversifying the adoption of EV battery types to lower costs.

“SK On needs to secure new clients to make maximum use of its existing capacity as its current clients are struggling with weaker EV sales,” said Cho Hyunryul, an anlyst at Samsung Securities.

Last week, SK On’s cross-town rival LG Energy Solution said it planned to minimise capital expenditure this year due to slowing global EV demand, after reporting a 75 per cent drop in quarterly profit.

Shares in SK Innovation were trading up 1.6 per cent, versus the benchmark KOSPI’s 0.4 per cent rise as of 0022 GMT.

($1=1,376.4300 won)