SK Innovation is expected to see improved performance starting from the second quarter due to the strong refining business and a reduction in losses in its battery business. The rise in oil prices due to the conflict between Israel and Iran, along with increased sales of electric vehicles by Hyundai Motor Group in the United States, has led to higher operating rates at battery plants.
According to reports on the 20th from the energy and securities sectors, SK Innovation's operating profit for the second quarter is expected to be 67.2 billion won, marking a return to profitability compared to the previous year. The forecast for the third-quarter operating profit is 374.7 billion won. SK Innovation's battery subsidiary, SK On, remains in the red, but profits from its refining, petrochemical, exploration, and production (E&P) businesses are expected to offset this.
The refining business is cruising smoothly thanks to a rise in refining margins. The refining margin, which is the price of petroleum products minus crude oil prices and transportation expenses, rose from $2.4 in the first week of April to $6.2 in the first week of May and $7.2 in the first week of June. Typically, refining margins are considered to break even at around $4 to $5.
The rise in refining margins has been influenced by a reduction in the supply of global refining facilities. The United States and Europe are expected to permanently close some aging refining facilities as early as the end of the third quarter, and in late April, there was an outage in the Iberian Peninsula that temporarily halted 1.5 million barrels of refining capacity. The increase in oil prices due to the armed conflict between Israel and Iran is also a positive factor for the refining industry.
The battery business of SK On, evaluated as the 'sore spot' of SK Group, is also showing signs of bottoming out. According to Hana Securities, the operating rate at SK On's plant in the United States for March to April was reported to be close to 100%.
This is due to an increase in the production and sales of electric vehicles by its largest customer, Hyundai Motor Group. The production and sales volume of models such as the Ioniq 5 and 9, EV6 and 9, and GV70 EV from the U.S. plant rose from 2,255 units in January to 17,045 units last month. This increase is attributed to rising demand to stockpile inventory before the implementation of a 25% tariff on imported cars.
To respond to the expansion of electric vehicle production at Hyundai, SK On has converted a significant portion of its Georgia plant line for the production of Hyundai battery cells since the end of last year. Currently, Hyundai's share is around 75%.
Jeon Woo-je, a researcher at KB Securities, noted, 'If SK On operates its U.S. facilities at over 90% in the second and third quarters, the deficit could be significantly reduced, making a return to profitability possible.'
The second amendment to the Inflation Reduction Act (IRA) in the U.S. Senate is also seen as positive news for the battery industry. This amendment extends the timeline for the advanced manufacturing production tax credit (AMPC) in the battery sector from the end of 2031 to 2033. SK On's expected amount from this change is estimated to increase to 27.9 trillion won, a rise of 7 trillion won compared to the earlier sunset provision.
However, the early elimination of the electric vehicle tax credit benefit in the U.S. poses a burden. Currently, U.S. consumers can receive a tax credit benefit of up to $7,500 if they purchase an electric vehicle that meets certain conditions. The U.S. Congress is seeking to eliminate this benefit starting next year. If the tax credit benefit disappears, demand for electric vehicles is expected to decrease significantly.