SK On's U.S. Battery Plant Begins Full Operation
Global Refining Margins Remain Strong
SK Innovation Stock Surges 10% in a Single Day
SK On, the battery subsidiary of SK Innovation, has begun full-scale operations at its battery plant in the United States. With global refining margins remaining strong, expectations are rising for a recovery in both the battery and refining sectors. The increase in battery demand driven by expanded electric vehicle production in the U.S., coupled with anticipated improvements in refining business performance, is creating a favorable environment for SK Innovation's earnings and stock price in the second half of the year.
According to KB Securities on June 18, SK On's U.S. plant is estimated to have reached full (100%) operation between March and April. On this day, SK Innovation's stock price closed at 108,000 won, up 10.65% from the previous trading day.
Industry analysts attribute this to the increase in battery cell production, which has kept pace with the ramp-up of electric vehicle production and wholesale sales at Hyundai Motor Group's U.S. plants, SK On's largest customer.
To proactively respond to Hyundai's expanded electric vehicle production in the U.S., SK On converted a significant portion of its Georgia plant lines to manufacture battery cells for Hyundai starting late last year. The share of Hyundai is reported to be around 75%.
The U.S. primarily operates on a franchise dealer system, where regional dealers pre-purchase hundreds of standardized vehicles and sell them directly to consumers. As automakers need to secure more inventory than their retail sales volume, this also helps boost cell sales for battery manufacturers.
Jeon Woojae, a researcher at KB Securities, said, "If SK On operates its U.S. facilities at over 90% capacity in the second and third quarters, the company could see a significant reduction in losses and may even turn a profit."
In addition, if the second revision of the U.S. Inflation Reduction Act (IRA), announced the previous day, is finalized, the expiration date for the Advanced Manufacturing Production Credit (AMPC) will be fixed at 2033. During this period, SK On's U.S. plant is expected to receive between 20.9 trillion won and 27.9 trillion won in AMPC benefits.
Meanwhile, as global refining margins remain strong, expectations for improved performance in the refining industry are also growing. Yoon Jaesung, a researcher at Hana Securities, said, "With the vacation season in the Northern Hemisphere, demand for gasoline and jet fuel is rising, and in the Middle East, demand for fuel oil is increasing due to air conditioning needs," predicting that strong refining margins will continue through the third quarter. Global energy consulting firm Wood Mackenzie reported that this year's complex refining margin reached $8.37 per barrel (about 11,471 won), the highest in the past 14 months, and Asian refining margins also climbed for seven consecutive weeks to $9.5 per barrel, marking a six-month high.
Supply-side factors have also played a significant role in the rise in refining margins. Recently, BP's Rotterdam refinery experienced a temporary shutdown, and major refiners in the U.S. and Europe have announced plans to close facilities with capacities of several hundred thousand barrels per day. Power outages on the Iberian Peninsula, as well as production disruptions in Nigeria and Mexico, are also limiting supply. Amid these supply constraints, OECD petroleum product inventories fell by 50 million barrels in May compared to January. Considering the potential for supply-demand instability in the U.S., analysts suggest that Korean refiners have greater opportunities to expand exports of refined products such as jet fuel.
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