Lubricant Business of Jinju Amid Oil Industry Downturn

Despite Poor Performance, Each Company's Lubricant Business Operating Profit Margin Records 8~14% Range

[Asia Economy Reporter Hwang Yoon-joo] The refining industry, struggling due to deteriorating market conditions and the COVID-19 pandemic, is focusing on the highly profitable lubricants business.

According to the industry on the 20th, last year SK Lubricants (a subsidiary of SK Innovation responsible for the lubricants business) recorded an operating profit of 305.8 billion KRW, sales of 3.1145 trillion KRW, and an operating profit margin of 9.8%. The operating profit margin of the lubricants division was seven times higher than that of the refining division (1.3%).

GS Caltex also posted an operating profit margin of 8.3% in the lubricants division, about five times higher than the refining division (1.7%), while S-Oil recorded 14.5%. In the case of S-Oil, the refining division showed a negative (loss) operating profit margin.

Lubricants are products made by reprocessing leftover oil (residual oil) from advanced refining processes into base oils and mixing various additives. Among the major business sectors of refiners (refining, petrochemicals, lubricants), lubricants are the most profitable segment. Automotive engine oil is a representative product.

Despite a decline in performance last year due to decreased product demand, each company recorded relatively high operating profit margins. This is because the implementation of the International Maritime Organization (IMO) 2020 environmental regulations this year caused a sharp drop in the price of high-sulfur fuel oil (HSFO), the raw material for base oils, improving the spread.

The refining industry plans to put more effort into the lubricants business this year. This is because it is a highly profitable and steadily growing market amid a situation where refining margins are struggling. The most aggressive market pioneer is SK Lubricants. Since 2017, with the commercialization of electric vehicles in mind, SK Lubricants has been supplying lubricants for electric vehicles to global automakers and is also aggressively expanding into overseas markets.

GS Caltex maintains its number one position in the domestic lubricants market with the brand 'Kixx.' Since 2015, GS Caltex has been known for actively engaging in SNS activities targeting engine oil product stakeholders such as mechanics. This year, it plans to maintain its market position by continuously communicating with mechanics along with differentiated marketing. S-Oil is the only company in Korea that simultaneously produces lubricants groups 1, 2, and 3. Lubricants from group 3 are classified as premium products, and S-Oil plans to focus on expanding sales of premium products.