CEO Hussein al-Qatani of S-Oil.

S-Oil’s foreign currency credit rating has been kept intact at “Baa2” despite business hardships, caused by the spread of the novel coronavirus.

S-Oil said on Sept. 4 Moody’s Investors Service affirmed the Korean refinery’s foreign currency rating at “Baa2.” Moody’s also retained S-Oil’s outlook as “stable.”

In spite of this year’s sagging business performance, the credit ratings agency reflected the outlook that S Oil’s credit rating for 2021 and 2022 will be improved to levels of supporting the current baseline credit assessment if the refinery’s future business performance is restored.

Announcing the Q2 business performance of late, S-Oil forecast that the refinery will see its future business performance improve on the back of a recovery of demand and stabilization of crude oil prices in the wake of the easing of restrictions, caused by the COVID-19 pandemic.

An S-Oil official said S-Oil is concentrating on the stabilization of its financial portfolio by maintaining fiscal policies such as a facility upgrade through the first phase New Complex (RUC & ODC) project and diversifying petrochemical businesses.

A view of the Multiple Petroleum Complex of S-Oil which went on stream lately in the Onsan National Industrial Complex, in North Gyeongsang Province. (Photos: S-Oil)

As refineries suffered massive losses amid sagging demand for petroleum products and worsening refinery margins, caused by the effects of the spread of the COVID-19 pandemic, only the lubricant business posted good business performances, playing a part of a buttress to reduce losses.

In particular, S-Oil’s lubricant business chalked up a little more than 38 percent in the ratio of operating profit to sales in the second quarter of the year to play a leading role in overcoming a recession.

The lubricant business’s operating profit was larger than that of the petrochemical business whose sales were more than two times more than those of the former. The lubricant business’s ratio of operating profit to sales stood at a whopping 38.1 percent.

 
According to S-Oil, the lubricant business saw the ratio of operating profit to sales rise higher in every quarter. The figure increased from 7.8 percent in 2019 Q1 to 12 percent in 2019 Q2, 12.8 percent in 2019 Q3 and 23.7 percent in 2019 Q4. Entering this year, the figure further jumped to 26.8 percent in Q1 and 38.1 percent in Q2.

Improving profitability of the lubricant business is owed initially to the declining price of its raw material. A plunge in crude oil prices leads to a drop in Bunker C-Oil, the raw material of lubricants, boosting lubricant margins and its ratio of operating profit to sales, industry sources said.

Figures, released by the Korea Petroleum Association, showed that weekly average prices of Bunker C-Oil plunged from $42.5 in Q1 to $27.3 in Q2.

As a result, four refinery companies all saw the lucrative lubricant business. SK Innovation and Hyundai Oil Bank logged 37.4 billion won and 20.2 billion won in operating profit, respectively.

GS Caltex followed suit by posting 55.3 billion win in operating profit. As for the ratio of operating profit to sales, GS Caltex, Hyundai Oil Bank, GS Caltex, and SK Innovation logged 20.9 percent, 16.4 percent and 8 percent, respectively.

It is noteworthy S-Oil’s lubricant business has surpassed its three rival refinery companies in terms of operating profit and ratio of operating profit to sales.