SK Lubricants’ Q2 profit rises

South Korea’s SK Lubricants, the world’s largest producer of Group III base oils, saw its profit rise in the second quarter on the back of strong demand and rising prices.

Profit rose for a seventh straight quarter to the third-highest level on record. The highest had been in the third and fourth quarters of last year.

Operating profit of 255.2bn South Korean won ($196.8mn) in the second quarter of the year rose by 13pc from the same period a year earlier.

Profit was up 21pc from W211.6bn in the first three months of the year.

Profit climbed as base oil prices rose faster than feedstock costs during the second quarter of the year. They had lagged the rise in feedstock costs during the first quarter.

Strong demand in the US especially also gave refiners more leverage to pass on higher feedstock costs through higher sales prices.

Higher prices more than countered a small drop in sales volumes during the second quarter of the year. Sales rose by 61pc from year-earlier levels to a record-high W1.23bn.

SK Lubricants’ profit margin of 20.8pc in the second quarter edged up from 20.3pc during the first three months of the year. It was down from 29.7pc during the same period last year.

The lower margin reflected the impact of higher crude oil prices this year compared with last year.

Group III producers have also had less leverage to raise prices sharply because of more balanced supply-demand fundamentals this year.

SK Lubricants expected ‘yield spreads’ to stabilize during the second half of the year as lower crude prices trim costs. The lower costs would counter the effect of lower sales prices as supply tightness eases.