South Korean refining margins boosted by exports


Refining margins will likely stay firm for South Korean refineries in 2013 as oil products like diesel will remain in short supply in the key export markets of Europe and Australia, traders and analysts said.

European refineries will continue to operate at low capacities this year, as they are not configured to produce large volumes of diesel, and aging and economically unviable facilities will continue to close due to financing difficulties, analyst Yeon-ju Park of Daewoo Securities said in its 2013 outlook.

In Australia, aging refineries unable to remain competitive have shut, and the country is a net importer of diesel from Asia.

"We expect the supply of petroleum products to remain tight in 2013," Mr. Park said.

He expects global supply of oil products to increase by 700,000 bpd in 2013 but demand to expand more, by 800,000 bpd.

Despite a slump in the global refining sector due to the economic downturn, supply has been tight due to both permanent and maintenance-related shutdowns in the US, Europe and Japan.

"As such, the export market for Korean refiners should grow," Korea Investment & Securities said in a note.

South Korean refineries saw their margins contract in the October-December period due to a supply glut as India boosted refining capacity, South Korean refiners maintained high output and arbitrage outflows declined.

However, for the January-March period, Korean refining margins are expected to recover on the back of "rises in [global] kerosene and diesel oil prices amid expanding demand for heating oil" and an "upswing in the chemical business," Hyundai Securities said in a note.

An ongoing cold spell in South Korea that recently sent temperatures dropping to their lowest levels in decades and power shortages, together with similar conditions in Japan, are expected to boost North Asian demand for kerosene and diesel in the short term.

As a result, South Korea's refiners -- SK Energy, Hyundai Oilbank Corp., GS Caltex and S-Oil Corp. -- continue to operate at almost full refining capacity and may not cut refinery throughput until the spring maintenance season.

SK Energy plans to shut a 110,000-bpd No. 2 crude distillation unit at its Ulsan refinery from mid-March to mid-April and the 170,000-bpd No. 3 crude distillation unit from mid-May to mid-June.

S-Oil will shut the 90,000-bpd No. 1 CDU at Ulsan in July for 2-3 weeks and the 240,000-bpd No. 3 CDU in April for 2-3 weeks.

Additionally, Hyundai Oilbank and GS Caltex also plan refinery maintenance in the second quarter, though the dates are not fixed, traders said.

The four South Korean refiners will process around 2.67 million bpd of crude in January, according to a Dow Jones Newswires survey. They processed around 2.58 million bpd of oil in November, roughly flat compared with 2.61 million bbl a year earlier, data from Korea National Oil Corp. showed.

Dow Jones Newswires

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