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Background of recent aggravated performances of the oil refining industry and the counterplan

Author Choi Dongwon Date 2015.06.16 Issue No 615

The oil refining industry in Korea is increasingly approaching a crisis level as its business profits of roughly 3.1 trillion won in 2011 changed into loss in just three years, recording about 2.47 trillion won

Recent changes in the global landscape can be summarized by the sudden decline in oil prices and the structural global oversupply

● As the drastic drop in oil prices led to  decline in refining margins and loss from inventory revaluation, the drop has been the strongest factor that aggravated the profitability of the oil refining industry in Korea last year
● However, more intrinsic risk factors to the oil refining industry in Korea, which has focused on exports, are the oversupply resulting from global establishment of additional facilities, and the following reduction in exports and permanent decline in refining margin

The global oil refining industry has worked on a multilateral restructuring process, such as large-scale M&As and shutting down of facilities with an aim to respond to new changes in environments

The oil refining industry in Korea has successfully established economies of size by conducting preemptive restructuring, but is lacking global industrial competitiveness from the quality aspect centered on advancing the industrial structure

● It is required to improve financial structures and business portfolios through bold restructuring of non-core businesses that are not competitive and thus unable to generate synergies based on advancement of the oil refining sector, which is one of the leading businesses 

In the long run, key points are reduction in dependency on the oil refining sector as well as effectiveness of the upstream and downstream of the sector