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Hyundai aims to lead Asia-Pacific oil refining

SEOUL: South Korea's Hyundai aims to build its fledgling oil business into a regional leader with an ambitious programme of refinery expansions, company executives said on Wednesday.

But analysts warned the planned expansion was likely to hurt the local industry already suffering from an oversupply of oil products.

Hyundai Oil Refinery Co Ltd, a unit of the mighty Hyundai Group HYGR.CN, has almost tripled its oil refining capacity to 310,000 barrels per day (bpd) from 110,000 bpd with the addition of a new 200,000 bpd crude distillation unit (CDU) that has just begun full commercial operations.

The refiner plans to add a new 300,000 bpd unit by 1998 and a further 200,000 bpd unit by 2000.

"Through steady and sound growth with high quality products, Hyundai Oil intends to become a leading energy company in the Asia-Pacific region in the 21st century," Chung Mong-hyuck, chief executive officer and president of Hyundai Oil, told reporters.

But analysts warned other oil companies would not sit still and let Hyundai Oil be the leader.

"The other refiners will expand, too," said Bill Hunsaker, of ING-Barings Securities. "Hyundai's plans will cause problems in the market. It will hurt the industry as a whole."

With other local refiners also adding capacity, South Korea's crude processing capacity is due to rise to 2.49 million bpd by end-1996 from 2.02 million bpd currently. The nation's supply will outstrip demand estimated at 2.08 million bpd in 1996 and 2.17 million in 1997.

"I'm very concerned with what's going to happen with the industry and how they are going to get rid of all that supply," said Hunsaker.

Lee Sang-koo, an analyst at Hyundai Securities, said: "It's not acceptable for one of South Korea's largest conglomerates to have such a small oil company."

Hyundai Group, South Korea's largest conglomerate in terms of assets, makes everything from computers and semiconductors to cars and ships.

In the meantime, Hyundai Oil hopes to swing to profit for the first time since it took over debt-ridden Kukdong Oil in 1993.

"We hope to break even soon and possibly post profits next year," said Kim Jung-rae, director of Hyundai Oil's corporate planning department.

The increase in output and aggressive sales are expected to boost Hyundai Oil's revenue. Hyundai's net loss last year was 44.8 billion won ($56.9 million) on a turnover of 1.15 trillion last year.

"We expect our sales to jump 63 percent this year to 1.87 trillion won," said Kim.

To boost sales, Hyundai Oil plans to increase the number of its service stations to 1,320 by the year-end to occupy 15 percent of the lighter oil products market, said Kim Jung-Rae, director of Hundai Oil's Corporate Planning Department.

Hyundai Oil now owns 1,030 gas stations, giving it an 11 percent market share. It had only 435 stations when it took over Kukdong Oil Refining Co in July 1993.

However, analysts said it looks unlikely that Hyundai Oil will turn a profit next year.-Reuter