April 27 (Bloomberg) -- SK Innovation Co., South Korea’s biggest oil refiner by market value, posted a smaller-than-expected 28 percent drop in first-quarter profit as it sold more products overseas.
Net income totaled 658.4 billion won ($581 million) in the three months ended March 31 from 909 billion won a year earlier, the Seoul-based company said in a filing today. That compares with the 609 billion won mean estimate from 16 analysts in a survey compiled by Bloomberg. Sales rose 10 percent to a record 18.9 trillion won in the quarter, helping offset a narrowing of processing margins from oil products.
Korea’s exports of oil products rose 28 percent in the first three months from the same period a year ago, driven by higher margins, according to government data. Export prices of oil products stood at $131.3 per barrel in March, compared with $113.7 per barrel a year earlier.
SK Innovation kept 78 percent of its oil refinery capacity busy and ran chemical plants at full capacity in the first quarter, according to presentation materials released today.
“Refining margins on oil products by Korean refiners may begin rising from the bottom starting in March while margins are still lower than the fourth quarter of last year,” Park Yeon Ju, an analyst at Daewoo Securities Co., said by phone before today’s announcement.
SK Innovation rose 2.5 percent to 166,000 won in Seoul trading as of 10:13 a.m. local time, heading for the biggest gain in two weeks. The benchmark Kospi stock index gained 0.3 percent.
Cracking margins of diesel from high sulfur fuel oil dropped to $16.8 per barrel in the first quarter from $28.5 in the first quarter and $22.4 in the fourth quarter of last year, according to the company. The processing margin for gasoline fell to $21.4 per barrel in the first quarter from $22.2 in the first quarter and compared with $12.3 in the fourth quarter of 2011.
Processing margins for oil products “may be weak in the second quarter from the previous quarter,” Jo Eun Kee, head of the corporate planning office at SK Innovation, told investors in a conference call today. It’s expected a recovery in margins “may be visible starting in the second half,” driven by solid demand in Asia and driving demand in the U.S., he said.
First-quarter operating profit fell 22 percent to 925.7 billion won, SK Innovation said.
SK Innovation’s refining unit, SK Energy, had sales of 14.4 trillion won in the first quarter and 574.8 billion won of operating profit. Operating profit at the company’s petrochemicals unit, SK Global Chemical Co., totaled 181.9 billion won with sales of 3.4 trillion won. SK Lubricants reported operating profit of 100 billion won and sales of 737.4 billion won.
SK Innovation is consulting with the South Korean government on the reduction of Iranian crude purchases, Jo told investors during today’s call.
“We are in talks with the government, but for the moment, it hasn’t been determined how much is to be cut,” Jo said. “Separately, we are preparing for a contingency plan” in the event purchases are reduced, he said.
Iranian crude purchases account for 10 percent to 15 percent of the company’s overall monthly purchasing volumes, he said.
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