WRAPUP 2-S.Korean refiners deepen crude run cuts in March

(Recasts, adds details)

By Angela Moon

SEOUL, Feb 22 (Reuters) - South Korean refiners will cut
March crude processing rates to just above 80 percent of total
capacity, down 10 percent from January levels, as they continue
to grapple with poor refining margins, a Reuters poll showed on
Friday.

Falling profit margins have prompted all the five refiners
to reduce overall crude runs to 2.25 million to 2.28 million
barrels per day (bpd), down from 2.36 million in February, also
pressuring them to reduce oil products exports next month.

Crude runs for March were down from a revised processing
rate of 2.51 million bpd in January, and were at their lowest
since October 2007 when major refiners shut their crude units
for regular maintenance, Korea National Oil Corp (KNOC) data
showed. [ID:nSEO368923]

"The margins have continued to fall since the end of
January, so the refiners are trying to cut as much as
possible," said a source with one of the five refiners.

SK Energy (096770.KS) has decided to cut crude runs to
680,000-690,000 bpd from around 700,000 bpd in February. South
Korea's largest refiner is already cutting runs by 60,000 bpd
this month as margins suffered.

SK Energy, which has a refining capacity of 840,000 bpd,
had been running at above 700,000 bpd since June 2006, the KNOC
data showed.

The cuts have prompted SK Energy to skip exports of fuel
oil for a second-consecutive month, and cut shipments of diesel
and jet fuel for March. [ID:nSEO351699]

"I am not surprised (by the cut). After its merger with SK
Incheon, SK Energy has more flexibility to cut or raise runs
depending on margins," said another trading source.

SUFFERING MARGINS

Margins have been undermined by poor demand from China,
Asia's top fuel oil buyer, as independent refiners ran on crude
supplied by Chinese state refiners instead of straight-run fuel
oil. For margin calculations, click on the link below.
<REF/MARGIN1> or <O#REF-MARGIN>

Asian plants processing Dubai crude saw topping margins of
minus $1.22 a barrel on average for the past 15 days, down from
minus 65 cents on average in January.

Third-largest refiner S-Oil (010950.KS), which has the most
complex facilities to produce lighter products and are less
influenced by simple refining margins, will cut March crude
runs to 500,000 barrels per day (bpd) from the current 520,000
bpd. [ID:nSEO353761]

"We will try to cut further, even below 500,000 bpd if
margins continue to suffer like this," said a company source.

The lower crude runs would also further reduce production
of fuel oil, forcing South Korea's two main power companies to
buy just two-thirds of the utility fuel they had sought via
tenders for March delivery. [ID: nSP51064]

The failure to secure the cargoes, at a time of colder
temperatures, would prompt the utilities to draw on their
inventories, prompting refiners to further cut spot export
volumes.

All in bpd

MARCH '08 FEB '08
SK ENERGY (096770.KS) 680,000-690,000 700,000
GS CALTEX 620,000-630,000 650,000
S-OIL (010950.KS) 500,000 520,000
HYUNDAI OILBANK 310,000-320,000 340,000
SK INCHEON 140,000 150,000
-------------------------------------------------------------
TOTAL 2.25 mln-2.28 mln 2.36 mln
(Editing by Ramthan Hussain