SINGAPORE/SEOUL, July 21 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
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
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