By ERIC YEP
South Korean refining margins have started the year on a
strong note and are likely to remain robust through March,
supported by seasonal plant closures for maintenance.
Refining companies are likely to keep run rates high, until
maintenance season in March, to take
advantage of the better margins. This, in turn, will support
Oil products were South Korea's largest export item last
year, with shipments totalling $56.2 billion, preliminary
government data showed. The country is the world's
South Korean refining margins are now supported by strong
demand for middle distillates, especially kerosene, due to
winter demand in North Asia.
South Korea has already tied up more than two million
barrels of kerosene exports to Japan for February.
However, Japanese buyers are careful about paying high
premiums to import kerosene from South Korea because if the
weather gets warmer, cargoes for delivery in the second half of
February will go to waste, a Japanese trader said.
"We believe refining margins bottomed in
December 2012 and will improve through the summer," analyst
Yeon-ju Park of Daewoo Securities said in a note.
Asian refining margins are forecast to
rise after refinery units go into seasonal maintenance in the spring and due to
stronger fuel demand as economies make a comeback. Analysts
also expect global refining capacity to remain constrained
until new capacity begins coming onstream in the second half of
the year, helping to underpin margins.
"Growth in electricity consumption in China, which normally
moves in tandem with growth in diesel demand, soared in
December 2012," Mr. Park said.
South Korea's refiners -- SK Energy, Hyundai Oilbank Corp.,
GS Caltex and S-Oil Corp. -- are expected to maintain full
utilization levels until maintenance kicks in.
SK Energy, South Korea's largest refiner by volume, is
running its main Ulsan refinery at around 900,000 bpd for
February, but March utilization will be lower due to maintenance, a Seoul-based trader
The four South Korean refiners will process around 2.7
million bpd of crude in February, according to a Dow Jones
Newswires survey. They processed around 2.65 million bpd of oil
in December, roughly flat compared with 2.60 million bbl a year
earlier, data from Korea National Oil Corp. showed.
Korea Investment & Securities said there were big swings
in last year's refining margins due to crude oil
price volatility, and margins should stabilize this year as
operating costs are unlikely to be as volatile.
"Also, the manufacture of high-margin products using less
profitable products, such as heavy oil and naphtha, should also
enhance earnings quality," Korea Investment & Securities
said, adding that refinery upgrades and the expanding
petrochemical business will add to
Dow Jones Newswires