Hyundai Shell Base Oil’s Q4 Profit Rises To One-Year High

South Korean Group II refiner Hyundai Shell Base Oil (HSB) reported its highest profit in more than a year in the fourth quarter, as sliding feedstock costs more than offset softer base oil prices.

HSB’s operating profit rose to  50.2 billion South Korean Won ($35 million) in the three months to end-December, climbing 23% year on year to the highest since the second quarter of 2024, a Hyundai Oilbank earnings report showed.

HSB is a joint venture between Hyundai Oilbank and Shell.

The fourth-quarter increase was the company’s fifth in six quarters, pointing to firm supply-demand fundamentals over that period to support the sustained profit growth.

Key Highlights

·         Fourth-quarter sales fell by 3% year on year and for the fifth time in six quarters, even as profit rose.

·         Diverging profit and revenue trends reflected six straight quarters of falling crude oil prices, with the decline always outpacing Asia Group II base oils prices.

·         The widening gap pushed the premium of Asia Group II prices over crude oil close to its highest level since 2022.

·         With profit outpacing sales, HSB’s fourth-quarter profit margin exceeded 20%, surpassing that level for just the second time in four years and reaching its highest level since 2021.

·         HSB accounted for 3.2% of Hyundai Oilbank’s total sales, but 10.2% of total profit, reflecting the outsized contribution of base oils to total earnings.

Market Repercussions

HSB’s earnings performance mirrored similar strength among other South Korean base oils refiners as the region continued to benefit from lower feedstock costs and relatively resilient base oils prices.

The absence of a matching drop in Asia base oil prices suggested that market conditions remained firm enough for regional refiners to resist steeper price-cuts even with lower crude prices.

That resilience could come under pressure over the coming year as new base oils production comes online globally, boosting supply.

But fundamentals have shown little sign of weakening so far, suggesting that the impact of new supply could remain more measured than the headline capacity additions suggest.