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Refiners, chemical firms feared to take further hit from virus

(Yonhap)
(Yonhap)

The new coronavirus outbreak is expected to deal a fresh blow to South Korean oil refiners and chemical makers already reeling from worsening profits, industry sources said Thursday.

The pessimistic outlook comes as South Korean refineries' exports to China, their largest overseas market, are projected to drop sharply because of the COVID-19 shock.

South Korean refiners resort to exports more than domestic demand for their sales. China is estimated to account for nearly 20 percent of their total overseas shipments.

Market watchers voiced concern that the prolonged coronavirus crisis will likely send South Korean oil refineries' exports to the world's second-largest economy tumbling.

"South Korean oil refiners will have no choice but to face hardships for the time being due to a slowdown in China's overall consumption," Lee Hee-chul, a researcher from KTB Investment & Securities Co., said.

Making matters worse, demand for jet fuel has been on the decline due to a plunge in global demand for air travel.

Since last year, South Korean oil refiners have been struggling due to falling refining margins stemming from an industrywide slump, which in turn resulted from weak crude prices.

Refining margins are linked to international oil prices. Higher crude prices mean greater margins, or the difference between the total value of petroleum products and the cost of crude and related services.

According to industry sources, international oil prices had been on the skids. West Texas Intermediate (WTI) crude for March delivery fetched $52.05 per barrel on Tuesday.

It was well below the December level. International oil prices once hovered above $60 per barrel that month amid high tensions in the Middle East in the wake of a US drone strike on Iran.

According to financial information provider Infomax, leading refiner SK Innovation Co. and smaller rival S-Oil Corp. are expected to be hit hardest by the coronavirus outbreak among 63 major listed firms, with forecasts for their first-quarter operating profit tumbling 82.4 percent and 71.1 percent from a month earlier, respectively.

South Korean chemical manufacturers, which depend highly on the Chinese market, are no exception. The forecasts for declines in operating profit are 39.1 percent for Lotte Chemical Corp., 38.9 percent for LG Chem Ltd. and 21.4 percent for SKC Ltd., according to Infomax, the financial news arm of Yonhap News Agency.

Citing sluggish performances and China's economic slowdown due to the coronavirus, global ratings agency Moody's Investors Service recently lowered its credit ratings for SK Innovation and SK Global Chemical Co. to "Baa2" from "Baa1." Moody's also cut its rating on LG Chem by one notch to "Baa1" from "A3."

"Chemical companies have to shake off worsened profits last year, but uncertainty is hanging over them due to the unexpected negative factor of the longstanding coronavirus epidemic," an industry source said.

South Korean oil refiners and chemical companies have yet to unveil their 2019 results, which are widely forecast to be much worse than a year earlier. (Yonhap)



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