May 6, 2020 / 1:07 AM / in a month

SK Innovation sees weak second-quarter refining margins on sluggish fuel demand

SEOUL (Reuters) - SK Innovation, owner of South Korea’s top refiner SK Energy, said on Wednesday that refining margins will come under pressure because of a fuel demand slump and a glut of refined products caused by the coronavirus pandemic.

Refiners globally have suffered from a 30% reduction in fuel demand as a result of travel restrictions and lockdowns to curb the spread of the novel coronavirus.

SK Innovation posted an operating loss of 1.8 trillion won ($1.5 billion) in the first quarter, compared with an operating profit of 328 billion won for the same period a year earlier, it said in an earnings statement.

“Sluggish fuel demand is expected to continue due to the COVID-19, and oversupplies are expected to keep refining margins weak in the second quarter,” the company said, referring to the respiratory disease caused by the coronavirus.

Lee Dong-yeol, the head of SK Energy’s corporate planning office, said in a call with analysts that the company planned to run its crude distillation units (CDU) lower to cope with the falling refining margins of jet fuel and gasoline.

Lee also said SK Energy is adjusting the output of jet-kerosene at its CDU’s in response to the plunge in jet fuel margins.

“We are producing kerosene at the minimum level and blending kerosene with (low-sulphur fuel oil). These are the ways we’re responding to market conditions,” he said.

SK Innovation, which has a total refining capacity of 1.115 million barrels per day (bpd) at plants in Ulsan and Incheon, ran at 89% of capacity on average in the first quarter, down from 95% during the same period a year earlier, according to the company statement.

“For planned maintenance, we plan to shut down No.5 CDU in the second quarter, and compared to the first quarter, that would cut 150,000 barrels per day of runs,” Lee said.

In March, the company said it would reduce its crude distillation units’ run rates by 10% to 15% because of lower exports and domestic demand.

Shares of SK Innovation were up 3.9% by 0301 GMT after the earnings announcement, while the wider market was 0.9% higher.

Reporting By Jane Chung; additional reporting by Heekyong Yang; Editing by Christian Schmollinger

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