Oil, currency swings split Q3 outlooks across Korean industries

Third-quarter earnings outlooks for South Korea’s major listed companies are diverging sharply as volatile oil prices and exchange rates benefit refiners and airlines while squeezing electric utilities and petrochemical producers.

Escalating geopolitical risks in the Middle East have driven up refining margins, lifting forecasts for oil refiners. Airlines have also benefited from the won’s appreciation, while surging energy costs have darkened the outlook for utilities and petrochemical companies.

According to financial data provider FnGuide on Sunday, Samsung Electronics and SK hynix ranked first and second among listed companies in upward revisions to third-quarter profit forecasts over the three months from June 22 to Sept. 22.

Robust memory chip shipments and continued price gains drove the increases. Samsung Electronics’ third-quarter operating profit forecast rose from 105.90 trillion won ($78.1 billion) three months earlier to 111.37 trillion won, an increase of 5.47 trillion won.

SK hynix’s operating profit estimate climbed from 76.91 trillion won to 78.12 trillion won over the same period.

More recently, however, analysts have begun to warn that Samsung Electronics’ third-quarter results could fall short of earlier estimates. The won has strengthened sharply against the dollar, while price increases for commodity DRAM have been weaker than the market expected.

Samsung’s monthly third-quarter operating profit estimate declined from 113.11 trillion won in August to 111.37 trillion won in September. It marked the first monthly decline in the company’s quarterly earnings forecast in a year.

Refiners have also seen sharp increases in third-quarter profit estimates as renewed fighting between the United States and Iran since July has sent oil prices higher.

SK Innovation’s third-quarter operating profit forecast more than doubled over three months, rising from 848.6 billion won to 2.01 trillion won. S-Oil’s estimate nearly doubled from 557.2 billion won to 1.08 trillion won.

Forecasts for holding companies with refining operations also increased substantially. HD Hyundai’s operating profit estimate rose by 1.09 trillion won, or 54.4 percent, while GS’s increased by 279.3 billion won, or 29.3 percent.

The upgrades have been driven largely by refining margins, which have surged alongside oil prices. Renewed geopolitical tensions in the Middle East have prolonged supply disruptions, pushing refined product prices up even faster than crude oil.

According to Korea National Oil Corp., gasoline prices in Singapore, the Asia-Pacific benchmark market, jumped nearly 70 percent from $78.14 a barrel in the second week of June to $131.16 in the second week of September. Kerosene and diesel prices more than doubled over the same period.

“Upward pressure on oil prices has intensified further after Saudi Arabia’s East-West Pipeline and the Bab el-Mandeb Strait, both alternative transportation routes, were also hit,” said Jeon Yu-jin, an analyst at iM Securities.

“Damaged refining facilities now account for about 10 percent of global capacity, and there are few alternatives capable of filling the gap. Higher crude costs are therefore being fully absorbed into product prices, which is likely to prolong strong refining margins.”

Korean Air’s earnings outlook has also risen markedly despite higher oil prices. Strong passenger and cargo demand has enabled the carrier to offset rising jet fuel costs through higher fuel surcharges and fares.

The sharp appreciation of the won in the third quarter is also expected to generate substantial foreign currency valuation gains.

Korean Air’s third-quarter operating profit forecast was raised 35.6 percent, from 258.4 billion won three months earlier to 350.3 billion won. Its revenue forecast increased 5.1 percent to 7.23 trillion won, while its net income outlook swung from a loss of 73.7 billion won to a profit of 236.7 billion won.

Growing inbound tourism and higher fares have supported passenger revenue. At the same time, global investment in artificial intelligence has fueled strong demand for high-value air cargo such as semiconductors, helping sustain elevated freight rates.

“Global jet fuel prices have reached $190 a barrel, raising concerns that airlines may have limited room to pass on additional costs,” said Ahn Do-hyun, an analyst at Hana Securities.

“Fuel costs are being passed through more quickly in cargo than in passenger services, and the fourth quarter is the peak season for air freight. Carriers should therefore retain pricing power for the time being.”

Korea Electric Power Corp. faces a sharply weaker near-term outlook as electricity rates have remained frozen for two years while oil prices resumed their rise in the third quarter.

KEPCO’s third-quarter operating profit forecast fell by more than 1 trillion won over three months, from 3.58 trillion won to 2.43 trillion won.

Petrochemical companies have also seen their forecasts cut substantially as higher feedstock costs weigh on profitability.

LG Chem’s third-quarter operating profit estimate dropped 62.8 percent over three months, from 512.2 billion won to 190.6 billion won. Lotte Chemical’s projected operating loss widened from 44 billion won to 142.5 billion won, more than tripling the expected shortfall.

The petrochemical industry briefly returned to profit in the first half as concerns about supply disruptions in the Middle East raised product prices and companies benefited from the delayed use of lower-cost feedstock purchased earlier.

In the third quarter, however, higher raw material costs began to feed through fully. The sector’s outlook was further weakened by company-specific risks, including potential Korea Fair Trade Commission fines related to alleged price-fixing in LG Chem’s vinyl chain business.

Among listed companies with third-quarter operating profit forecasts of at least 100 billion won, Samsung SDI recorded the steepest upward revision over the past three months.

Its operating profit estimate jumped more than eightfold from 14.8 billion won to 125.1 billion won. The increase, however, largely reflects a one-time payment of about 150 billion won received in connection with the winding down of its joint venture with General Motors.