The impact of a strong Dollar on refineries in South Korea and Japan

The impact of a strong Dollar on refineries in South Korea and Japan
The impact of a strong Dollar on refineries in South Korea and Japan

Refiners in South Korea and Japan rely almost entirely on imports to obtain their raw materials. They are fully feeling the impact of the strong US dollar. With the Japanese yen falling to its lowest level since 1990 and the South Korean won at a 17-month low, import costs for crude oil, condensate and naphtha have risen sharply. These rising costs are putting refining margins under pressure. Domestic inflation and consumer sensitivity to currency fluctuations are exacerbating this situation, according to information from major refiners such as Cosmo Oil and S-Oil.

Refiners’ Strategies to Face Currency Volatility

Against the dollar, some refiners plan to maximize their dollar revenues by increasing exports of petroleum products. Despite the fact that domestic sales and margins of petrochemicals may suffer. However, the outlook for the second quarter is not optimistic. Export margins are unattractive and logistics costs high, as a sales representative for a Japanese refiner explains.

Consequences on domestic sales and exports

In South Korea, domestic sales of gasoline and diesel fell 8.8% in March. However, exports of these fuels climbed 22.6%, according to Korea National Oil Corp. In Japan, gasoil/diesel exports also increased, despite a decline in domestic demand. Furthermore, this illustrates the complexity of market dynamics influenced by exchange rates.

South Korea’s oil reserves policy

Faced with rising fuel prices, Korea National Oil Corp. reaffirmed that it would not release its oil reserves. This highlights the limitations of using strategic reserves for economic relief, a principle that remains firm despite public pressure.
The impact of the strong dollar highlights challenges for refiners in South Korea and Japan, affecting import costs and management of domestic markets. These monetary tensions require adaptive strategies to navigate an uncertain and interconnected global environment.

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