S-OIL, Operating Rate at 100% Amid COVID-19 Recession

CDU (Crude Distillation Unit) Operating Rate at 99.8%, Higher Than the Recent 2-Year Average
Increased Export Volume to China Amid Demand Recovery

[Asia Economy Reporter Hwang Yoon-joo] S-OIL is attracting industry attention by maintaining a factory operating rate close to 100% despite the recession caused by the COVID-19 pandemic.

According to the refining industry on the 11th, S-OIL is recording an equipment operating rate of 99.8% as of this date. This is a higher operating rate compared to the averages of 99.1% in 2018 and 95.4% in 2019.

The reason S-OIL can maintain a high operating rate despite the COVID-19 recession lies in exports. S-OIL's major export countries are China, Japan, Australia, Southeast Asia, Singapore, Taiwan, and the United States. Among these, the largest export volume goes to China. The export share to China dropped from 22.5% in the second quarter of last year to 15.3% in the first quarter of this year, when the COVID-19 crisis was at its peak.

Afterwards, S-OIL strengthened marketing in the Chinese region and raised the share to 31.5% in the second quarter. Australia is also one of the major regions where export volume increased after the COVID-19 outbreak. In the second quarter of this year, the export share to Australia recorded 14.1%, an increase of 5.3 percentage points compared to the previous quarter. The average daily total export volume also increased by 8.1% from 370,000 barrels in the previous quarter to 400,000 barrels.

An S-OIL official explained, "China was the first to recover from the impact of COVID-19 and is restoring oil demand," adding, "We are actively marketing in regions where demand is recovering, such as China, and redirected volumes reduced in the US and Europe to these recovering regions."

In the market, unlike other refiners that are lowering their operating rates after the COVID-19 crisis, S-OIL is maintaining its operating rate through an aggressive export strategy, which is expected to positively affect performance recovery. The consensus for operating profit in the third quarter, estimated by securities firms, is 234.2 billion KRW, an increase of 1.94% compared to the same period last year. Net profit is also expected to rise by 273.4% to 192.7 billion KRW.

However, a cautious atmosphere is sensed within S-OIL. This is due to increased volatility in international oil prices and delayed recovery in oil demand. Dubai crude oil peaked at $45.93 per barrel on August 31 during the second quarter (July to September) and fell to $39.49 on the 9th. Meanwhile, the refining margin, which had been maintaining a zero-dollar level, turned negative again last week at -$0.8. It is explained that active sales activities are difficult to fully reflect in profit improvement under these circumstances.