SK Innovation sees refining margins rebounding on IMO

South Korean refiner SK Innovation has raised its forecast for profit margins on distillates in this year's second half, as buyers begin to stock up on low-sulphur fuel and start testing ahead of International Maritime Organisation's cap on sulphur in marine fuels from 1 January 2020.

Margins also will get a boost from seasonal demand for gasoline, SK said. The outlook follows an April-June quarter in which the Asia-Pacific refining margin benchmark the Singapore GRM dropped to a decade-low of $1/bl from $2.70/bl a year earlier.

SK said gains in crude and fuel prices stalled late in the quarter as the US-China trade war deepened, raising uncertainty about the global economy. Margins rose in the third quarter, with the Singapore GRM averaging $6.90/bl through the first 25 days of July.

This outlook echoed that of rival South Korean refiner S-Oil.

SK said it sees petrochemical margins continuing to slump. Margins will remain weak amid China's slowing economic growth and additions of paraxylene (PX) capacity, the company said.

The average profit margin on polyethylene (PE) dropped to $479/t in the second quarter, down by 11pc from the previous three months, SK said. PE spreads slid by 28pc to $378/t, while PX margins fell to just $365/t, down by 35pc from the January-March average. But the average benzene margin rose by 21pc to $85/t amid firmer US demand.

SK's second-quarter operating profit fell by 42pc from year earlier to 497.5bn won ($419.8mn). Fellow South Korean refiner Hyundai Oilbank reported a 51pc fall in operating profit to W154.4bn.