SK Innovation expects IM0 2020 to help improve refining margins
SEOUL, Oct 31 (Reuters) - SK Innovation, the owner of South Korea's top refiner SK Energy, said on Thursday that a recovery in refining margins is expected in the fourth quarter ahead of the implementation of new shipping fuel rules from 2020.
As the International Maritime Organization (IMO)'s global sulphur cap on marine fuels comes into force from 2020, demand for low-sulphur fuel oil and marine gas oil is expected to pick up, the company said. The IMO's new shipping fuel mandate will limit the sulphur content of fuels to 0.5%, from 3.5% currently.
"Refining margins are expected to improve led by middle distillates demand as the International Maritime Organization (IMO)'s shipping fuel rules set to take effect from 2020," the company said in an earnings statement.
Ahead of the IMO's stricter marine fuel regulation, Kim Ji-yong, a senior official at SK Energy, said in a call with analysts that the company is in talks with shippers about long-term contracts to supply low-sulphur fuel oil or marine gas oil.
Kim added that the company's vacuum residue desulfurisation unit (VRDS), which can produce 40,000 barrels per day (bpd) of low-sulphur fuel oil, would start commercial operations in March or April next year.
A week ago, S-Oil, South Korea's third-biggest refiner, also said inventory build-up ahead of the IMO 2020 and seasonal demand for heating were expected to help refining margins increase in the fourth quarter.
SK Innovation saw a 60.5% drop in operating profit for the July-September period to 330 billion won ($284.31 million) because of inventory-related losses on a drop in oil prices, compared with 836 billion won over the same period a year earlier, according to the company statement.
SK Innovation, which has a total refining capacity of 1.115 MMbpd in Ulsan and Incheon, ran at 90% capacity on average in the third quarter, slightly down from 92% during the same period a year earlier, the statement noted.
In the fourth quarter, some of SK Energy's facilities will undergo maintenance, said Kim Jang-woo, head of finance at SK Innovation. In mid-September, SK Incheon Petrochem, a petrochemical unit of SK Innovation, suspended its production for planned maintenance and will resume operations on Nov.3.
Shares of SK Innovation edged up 0.9% by 0218 GMT, while the broader market was 0.8% higher.
($1 = 1,160.7000 won) (Reporting By Jane Chung; additional reporting by Hyunjoo Jin Editing by Shri Navaratnam and Gerry Doyle)
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