S-Oil’s Q2 lube profit holds firm

South Korean refiner S-Oil’s sales from its base oils and lube unit rose to a record-high in the second quarter of the year as base oil prices surged.

The unit’s profit failed to keep pace with the rise in sales amid sustained pressure from higher feedstock costs. It was still the third highest ever.

Operating profit of 258.9 billion South Korean won ($198.8mn) in the three months to end-June fell by 9pc from year-earlier levels. It rose by 33pc from W195.3bn in the first quarter of the year.

Profit rose from the first three months of the year as base oil prices surged, especially in Europe and the US.

Base oil prices had initially lagged the surge in crude and diesel prices during the first quarter of the year. They then outpaced crude and diesel prices during the second quarter.

The higher prices and strong demand in Europe and US helped to lift the base oil unit’s sales to W888bn in the second quarter of the year.

The record-high revenue was up 35pc from year-earlier levels and marked the sixth successive quarter of rising sales.

Higher base oils prices lifted their premium to crude and diesel in the second quarter. But the premium was lower than during the same period a year earlier.

At that time, base oils supply-demand fundamentals were unusually strong, and crude prices at lower levels.

This time, base oils supply-demand fundamentals were more balanced, with rising crude and diesel prices a key driver behind higher base oils prices.

S-Oil’s base oils and lube profit margin reflected that dynamic.

The 29.2pc profit margin in the second quarter rose from 26.3pc during the first three months of the year. It was down from 43.1pc during the second quarter of last year.