S-OIL achieved a remarkable business performance with its innovative conversion through large-scale investment in petrochemical facilities. On April, 27, the refiner reported its provisional operating profit of 629.2 billion won in the 1Q of 2021, the highest quarterly operating income since 2Q of 2016 (640.8 billion won). Its sales reached 5.3448 trillion won, up 24.9% from 4.2803 trillion won from the same period last year.

Thanks to its well-balanced business portfolio, which is mainly comprised of refining, petrochemical and lube base oil businesses, the company was able to swing to positive territory from losses suffered in 2020. The refining business raked in 3.7974 trillion won in revenue with 342.0 billion won of operating income.

The petrochemical business generated 1.0211 trillion won (+24.2% QoQ) of revenue with 98.3 billion won (+39.7% QoQ) of operating income. The lube base oil business’ sales reached 526.3 billion won, recording 188.9 billion won of operating income. Operating margin on lube base oil stood at 35.9% contributing to 30% of the Company’s total operating income despite the fact that its revenue only accounts for 9.8% of the total revenue. In total, non-refining businesses generated 45% of the total operating income.

S-OIL’s surprising performance of doubling the market consensus is drawing attention because the achievement was made while Singapore refining margin stagnated at -$1.8 per barrel since the fourth quarter last year due to the spread of COVID-19.

S-OIL explained at its earnings conference call for the first quarter of 2021, “On the back of global demand recovery, spreads (a price differential between Product and Diesel) of S-OIL’s major products, gasoline and diesel, improved by $2.1 ($3.0→$5.1) per barrel and $1.4 ($4.3→$5.7) per barrel respectively compared to the previous quarter. In the petrochemical business, strong margin of polypropylene continued while the upward trend for propylene oxide, which started in 2nd half of last year, remained intact. Moreover, a longer than expected tight supply of lube base oil significantly widened the spread to the level of that in the boom market. Therefore, the company’s Ulsan refinery focused on maximizing the production of highly profitable products while maintaining the maximum operation rate.” 

Also the outlook of S-OIL’s performance in the second quarter seems rosy considering the fact that its new upgrading facilities are now at the phase of stable operation and all units can be operated reliably without shutdowns as there are no major turnarounds planned this year. 

Demand for S-OIL’s olefin products such as propylene oxide and polypropylene, major petrochemical products, is strongly supported by policies to promote consumption implemented by major countries including China and solid recovery of demand for automobiles, home appliances and packaging. Demand for premium lubricant base oil products also recovered rapidly due to a surge in automobile sales, but supply remains very tight as refiners maintain their operation rates lower than those in the past hindering the recovery of production. 

“Backed by stable demand growth in the petrochemical and lube base oil markets, it is expected that the business environment will remain favorable for S-OIL for a while,” said a source from the Company. The source also added, “Refining margins are expected to improve gradually as demand for petroleum products recovers due to the limited impact from increasing supply as shutdowns of uncompetitive facilities increase, and demand recovery supported by increasing vaccination rate.”