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SINGAPORE/SEOUL, July 21 (Reuters) - Refineries in South Korea are gearing up to trim output in August on persistently weak margins and as some units are shut for maintenance, sources with direct knowledge of the matter said on Monday.
South Korean refiners are among the first in the region to react to slow demand as they are a major exporter of petroleum products. The output cuts reinforce an unusually weak oil consumption outlook in Asia this summer.
"I haven't seen this kind of run cut in our refinery before," one source said.
South Korea has the fourth-largest refining capacity in Asia Pacific at 2.887 million barrels per day, according to BP Statistical Review 2014.
The country's top two refiners, SK Energy and GS Caltex, will operate at 70-87 percent of their capacities in August, down about five percentage points from July, the sources said.
SK Energy has reduced the run rate at the smaller of its two refineries due to ongoing works to connect a new condensate splitter unit in Incheon, a source said.
Spokespersons at SK Energy, a unit of SK Innovation , and GS Caltex, a unit of GS Holdings, declined to comment.
S-Oil Corp, the country's third largest refiner majority owned by Saudi Aramco, is operating at 95 percent, two sources said.
Still, its operating rate could fall in August when its residue fluid catalytic cracker (RFCC) is shut for planned maintenance later this month, one source said. S-Oil did not immediately respond to a request for comment.
Hyundai Oilbank, the country's smallest refinery, may reduce its run rate in August to about 85 percent, two sources said. A spokeswoman at the refiner said its run rate remained steady at around 90 percent this month and is likely to stay so for a while.
Product cracks are showing very negative prospects until at least the end of October, a South Korean trader said, adding that margins may improve a little bit by winter.
Refiners face a potential $6 loss for every barrel that they process at crude distillation units, the sources said, although there is still some profit from secondary refining units, which process oil further into higher-quality products.
The refiners are trying to cut the volume of crude they process and instead buy residue fuel to operate secondary units at higher rates.
One refiner which will start buying straight run fuel oil on a regular basis is Hyundai Oilbank which inked a contract with Swiss trading house Vitol for six months of supply starting from July-August. (Reporting by Jane Xie Seng Li Peng, Jacob Gronholt-Pedersen and Florence Tan in Singapore, Meeyoung Cho in Seoul; Editing by Muralikumar Anantharaman)