Korean industries show mixed reactions to oil price hike

Korean industries showed mixed reactions to the rising global crude oil price over the weekend, with the ailing shipbuilders expressing relief, while aviation and shipping businesses remained cautious.

According to the Korea National Oil Corporation’s oil information provider Opinet, the average of the Korean gasoline price hit its yearly high, going to 1,460 won ($1.23) per liter, Saturday. The diesel price also surged to a yearly high of 1,253 won per liter. The oil information provider speculated that the Brent crude price rise contributed to the gasoline price jump in Korea.

Brent crude neared $55 per barrel last week amid a steady climb due to the Organization of Petroleum Exporting Countries’ decision to cut output by 4 percent, or by 1.2 million barrels per day, late last month. 

The Korean oil refiners and shipbuilders are welcoming the oil price hike as it would likely bring optimistic impact on their businesses.

Korea’s four major oil refiners -- SK Innovation, GS Caltex, S-Oil and Hyundai Oilbank -- can sell the processed oil at higher prices based on the base material they already purchased at lower prices beforehand.

About 130 billion won of extra operating profit on average is expected for the refiners when crude oil prices increase by $1 per barrel, industry insiders said.

“When the global oil price halved to about $50 in 2014, the oil refiners saw massive losses. They, on the other hand, can see improvement in their performances once the crude price goes up,” said a source from the oil refining industry.

The ailing shipbuilding industry is also hoping to see an increase in orders for vessels and marine plant projects as the order number is generally proportional to the oil price hike.

In line with the optimistic news, Daewoo Shipbuilding and Marine Engineering on Sunday said it had won an order to build a LNG-Floating, Storage & Regasification Unit vessel from Greek company MaranGas Maritime.

While the contract to build the 173,400-cube-meter vessel has not been disclosed, it is reported to be worth around $200 million to $250 million. If the optional deal for building two more liquefied natural gas vessels is included, the value of the contract would reach about 700 billion won, the company said.

This is the first in two months, after the company bagged a deal for building a warship in October.

The vessel is scheduled to be handed over by 2020.

While some industries hailed the oil price jump, the aviation and shipping industry stayed cautious over the possible aftermath of the oil price hike.

When oil prices remain low, fuel tends to equal about 20 percent of the local airliners’ annual sales.

Depending on oil price trends, fuel costs can take up as little as 20 percent of local airliners’ annual sales, compared to as large as 30 percent.

If the crude price continues to soar, airliners will have no choice but to raise air fees, industry insiders said. The Korean aviation industry annually goes through about 32 million barrels of fuel.

The price increase of bunker-C oil will also likely pose a burden to the Korean shipping industry, which is already striving to overcome cash-strapped status amid restructuring moves.

Of the total shipping costs, fuel takes up about 30 percent, the industry said.

Goldman Sachs analysts have forecast that the Brent price increase will continue to rise and near $59 by the second quarter of next year. 

By Lee Hyun-jeong (rene@heraldcorp.com)