S-Oil Stock

Good morning. This is Katie Kong, Treasurer of S-Oil. I'd like to extend my gratitude to our investors and analysts in and out of Korea for joining S-Oil's Conference Call for Q2 2026 earnings results.

For today's conference call, we have CFO, J.W. Bang; IR team leader, Mr. H.D. Jeong and team members.

First, I will take you through the highlights of Q2 results. In Q2 of 2026, global refining margins remained strong as the impact of the Middle East conflict continued. Despite lower crude prices toward the end of Q2, as the blockade of the Strait of Hormuz was temporarily lifted, operating income reached KRW 965 billion, supported by strong global refining margins and record high lube base oil spreads. In particular, the lube business contributed significantly to Q2 earnings, posting a record quarterly operating profit of KRW 477.4 billion.

Next is the market outlook. Due to the Middle East conflict, crude oil and product supply disruptions continued in the first half, leaving global inventories at significantly low levels. With tight supply-demand conditions expected to persist in the second half, we expect firm market conditions to continue. Next is the progress of Shaheen project. The Shaheen project is progressing towards commercial operation in early 2027. The company is currently conducting field inspections, equipment performance checks and document verification to confirm mechanical completion. Pre-commissioning and commissioning activities are also in progress across the process units. The company will make every effort to ensure a smooth start-up in the second half and achieve commercial operation in early 2027.

Now IR team leader, Mr. H.D. Jeong will get into more details for Q2 performance and market outlook.

Good morning. This is S-Oil IR team leader, H.D. Jeong. Before we begin, please note that Q2 2026 financial results are provisional and therefore, subject to change according to outside independent external auditors' audit results. First, please refer to Page 5 for Q2 2026 financial results. In Q2 the company posted sales revenue of KRW 11.3 trillion, up 26.8% Q-on-Q driven by higher crude prices. Operating income was KRW 965 billion, down 21.6% Q-on-Q, as the one-off impact of higher crude prices recognized in Q1 largely subsided. If you look at each business segment, operating income from the refining segment declined 49% Q-on-Q to KRW 532.4 billion.

Although global refining margins remained strong, particularly for diesel and gasoil amid the Middle East conflict. Operating income decreased Q-on-Q due to the reverse base effect from the one-off crude price benefit recognized in the first quarter. Although margins in the Petrochemical segment improved slightly Q-on-Q, the segment turned into a loss due to inventory-related impact. Operating income from the Lube segment rose 187% Q-on-Q to KRW 477.4 billion, driven by record high product spreads amid tight supply-demand conditions. As mentioned earlier, this represents the highest quarterly operating profit on record. For reference, the company recorded KRW 113.7 billion in inventory-related gains in Q2, most of which were generated by the Lube segment. This was significantly lower than KRW 643.4 billion recorded in the previous quarter.

In financial and other gains and losses, the company recorded net interest loss of KRW 66.6 billion and net foreign exchange loss of KRW 155.6 billion due to foreign exchange increase. Q2 income before tax and net income come in at KRW 705.5 billion and KRW 514.6 billion, respectively. Moving on to financial status. As of the end of Q2 2026, the company held KRW 1.5 trillion in cash, while net debt to equity ratio was 78.1%. Despite external market volatilities, the company continues to maintain sufficient liquidity and stable financial structure through competitive and timely financing at low interest rate to support smooth execution of Shaheen project [indiscernible] for the first half came in at KRW 2.1 trillion.

Now I will go through market environment and outlook by each business segment. First, turning to the Refining segment on Page 7. As mentioned earlier, despite strong regional refining margins driven by the Middle East conflict second quarter operating income from the refining segment declined Q-on-Q to KRW 532.4 billion as the substantial inventory-related gains recognized in the first quarter did not recur in the second quarter. Turning to Dubai crude prices in the second quarter. Prices remained above $100 per barrel throughout April and May, as the Middle East conflict continued and the Strait of Hormuz remained closed. However, following the temporary easing of the blockade in June, crude prices declined rapidly with Dubai crude averaging $79.5 per barrel for the month.

Since then, crude prices have continued to fluctuate sharply in line with developments in the conflict, and they are expected to remain highly sensitive to geopolitical developments going forward. Asian refining margins strengthened significantly in Q2 as tighter refined product supply relative to crude drove product spreads sharply higher. The market was supported by the start of the driving season continued Ukrainian drone attacks on Russian refineries and supply disruptions from the Middle East. Accordingly, the average kerosene and diesel spreads widened further Q-on-Q to around USD 62 per barrel, which also increased Q-on-Q with the onset of the driving season, reaching USD 25.6 per barrel in Q2.

Tight market environment is expected to persist in Q3 amid ongoing crude and product supply disruptions. The driving season remains underway, while Europe is expected to increase demand for diesel used in power generation due to heat waves. Also, as continued Ukrainian drone attacks on Russian refineries, Russia's export restrictions on products such as jet fuel and diesel are expected to keep major product markets tight. However, geopolitical developments are expected to influence the strength of product spreads in the second half of the year. A more detailed outlook for the second half will be provided in the key business update section with supporting data.

Next is Petrochemical business segment. In Q2, Petrochemical segment posted an operating loss of KRW 44.8 billion, although margins improved somewhat, supported by higher PO spreads. Inventory-related gains turned into losses from the previous quarter Let me now discuss the market environment in Q2. In April and May, PX spreads narrowed to around USD 200 per ton on average, as feedstock naphtha prices surged following the Middle East conflict, while PX prices failed to keep pace with the increase in naphtha prices. However, in June, naphtha prices stabilized following the easing of the Strait of Hormuz blockade, allowing PX spreads to recover to the USD 350 per ton range.

As a result, the average PX spreads for Q2 came in at USD 251 per ton. Operating rates at major facilities due to naphtha supply disruptions, together with the resumption of Korean benzene exports to the U.S. helped improve the regional supply-demand balance. As a result, the average benzene spreads for Q2 increased by USD 20 Q-on-Q to USD 139 per ton. For olefin downstream improved to USD 229 per ton in Q2. For PO, the market remains strong as lower operating rates caused by feedstock supply disruptions following the Middle East conflict together with pre-bought customers concerned about supply shortages supported the prices. As a result, the average PO spreads over propylene widen to USD 351 per ton in Q2.

Let me discuss the outlook for the Petrochemical segment in Q3. For Aromatics, supply is expected to decline as planned maintenance shutdowns at Chinese facilities originally scheduled for Q2 have been postponed to Q3, resulting in lower operating rates, being volatile depending on the timing of plant restarts and the pace of downstream demand recovery. If geopolitical volatility in feedstock supply and prices, including naphtha and propylene is also expected to continue.

For olefin downstream products, PP is expected to remain weak amid continued regional supply growth from new capacity additions. Meanwhile, for PO, spreads are expected to moderate as supply recovers from the previous quarter and seasonal demand weakens. Next is Lube business segment. Operating income from the Lube segment reached a record high KRW 477.4 billion in Q2. LBO market remained strong across all grades due to supply disruptions in the Middle East with particularly tight market conditions for Group III base oil. Direct product disruptions at Middle East facilities, together with logistics constraints caused by the closure of the Strait of Hormuz drove a sharp increase in LBO prices. As a result, LBO spreads increased by approximately USD 90 per barrel Q-on-Q to a record high USD 139.7 per barrel. Tight supply-demand conditions are expected to persist in Q3 as supply disruptions continue. A more detailed explanation will be provided in the key business update section.

Next is key business update. First, let me walk you through the supply and demand outlook. The Middle East conflict continues to affect global crude oil and refined product markets. Geopolitical tensions in the Strait of Hormuz and the Red Sea have disrupted crude oil transportation, leaving global crude inventories at historically low levels. Refined product inventories have also remained at historically low levels due to the blockade of the Strait of Hormuz and operational disruptions at refineries in the Middle East and continue to persist. Despite U.S. refineries operating at exceptionally high utilization rates in the mid-90% range during Q2, U.S. gasoline inventories have fallen to historical low levels due to reduced imports amid tight market conditions.

In addition, as demand for diesel for power generation has increased amid the European heat wave. Russia has expanded its export restrictions to include gasoline, jet fuel and diesel following damage to its refining facilities. Meanwhile, refinery operations and exports in Middle East continue to be disrupted due to blockade of the Strait of Hormuz following the Middle East conflict. As a result, tight supply-demand conditions are expected to continue affecting market conditions through at least the end of this year and into next year. Accordingly, global refining margins are expected to remain firm for the foreseeable future.

LBO market is also being significantly affected, particularly for Group III as tight supply in the Middle East continues to intensify. The Middle East accounts for approximately 30% of global Group III base oil supply capacity. And as a result, Group III spreads have reached record high levels. Given the disruptions, the current supply tightness is expected to persist for an extended period even after the Strait of Hormuz reopens. More than 35% of the company's LBO production capacity consists of Group III products. Accordingly, the current strength in the LBO market is having a meaningful impact on our earnings. Based on current inventory levels and supply-demand conditions, the company expects market conditions for the refining and lube businesses to remain firm throughout the second half of the year.

Last is the progress of Shaheen project. The company is currently verifying mechanical completion through site inspections, equipment performance checks and reviews of submitted documents to verify whether the requirements for mechanical completion have been met. At the same time, pre-commissioning and commissioning activities are underway with a start-up scheduled to follow and commercial operation targeted for earlier next year. On the marketing side, annual supply agreements for olefin monomers have been secured with customers, while additional contracts are being pursued to expand the customer base. Customer pipelines have also been completed and commissioning is planned in line with Shaheen start-up. For PE, quality evaluations are being conducted through pre-marketing, while marketing efforts are underway for early securing key domestic customers. We will keep you updated on the progress of Shaheen project.

This concludes our presentation. Thank you.

[Foreign Language] [Operator Instructions]

The first question will be given by Jung-il Oh from Shinyoung Securities.

[Foreign Language]

I have 3 questions and thank you for the opportunity to chose my question. First is your outlook on the refining business in the second half of the year? And how will the company respond to the escalating geopolitical risks in the Middle East, namely a possible closure of the shipping route in the Red Sea and how we are going to counter to these risks in terms of sourcing crude?

My second question has to deal with the global -- your understanding and market intel on the global refining facilities disruptions caused by the war in Iran and Ukraine's drone attacks against refining facilities in Russia? And how do you expect the overall market supply and demand conditions to evolve after the end of the war? My third question is your CapEx plan for this year and 2027.

[Foreign Language]

So to answer your first question on the refining market conditions in the second half of the year. As was also explained by the IR team leader, the overall margin is very strong for a number of reasons. First of all, we are seeing exports from the Middle East being contracted because of the war and the Russian's refining facilities are also disrupted because of the drone attacks from Ukraine, and this subsequently moved the Russian government to impose restrictions on jet fuel and diesel exports, and China is also restricting its exports of refined products.

[Foreign Language]

So we don't expect the situation to clear itself in the short term. So even if the war comes to an end, we believe the strong refining margin trend will continue at least until the end of the year and even in 2027.

[Foreign Language]

And in response to the company's crude sourcing due to disrupted by the war in Iran, we are actually coming up with various response measures to this. We have been securing feed through a different ports, and we've also taken -- utilized the non-Saharan Blend crude as an alternative, and we're also securing crude oil from Saudi Arabia. Saudi crude oil is stored in Ulsan, and we also sought leased the government stockpile oil. So these are all the measures that we are working on in response to the crude sourcing.

[Foreign Language]

So again, we are using the Detour shipping routes since the war broke out, and we're also looking into various supply scenarios and countermeasures under the assumption that there will be some disruptions in the shipping routes from the Red Sea. And if we opt for the Detour shipping routes through the Suez Canal, this could delay the crude arrival to South Korea by about 30 days. So we'll come up with various phased countermeasures such as leasing the stockpile crude oil from the government and tapping into spot crude oil on a contingency basis.

[Foreign Language]

Doing so, we'll be able to minimize the impact of the disruptions in the shipping routes even if there are, again, disruptions in the shipping routes from the Red Sea.

[Foreign Language]

So to answer your second question, we understand that there have been quite sizable disruptions in the operation of refining facilities in Russia because of Ukraine's continued drone attacks on Russia's refining facilities. As of July this month, about 40% of Russia's refining capacity has been hit by the drone attacks. And in terms of the utilization rate, it is equivalent to about 36%.

[Foreign Language]

And subsequently, the Russian government made announcement on banning the exports of refined products. In June, they announced banning the exports of jet fuel, which will continue until November this year. And they also recently made announcement that export ban of gasoline and diesel will be extended until January next year.

[Foreign Language]

And in relation to the war in Iran, we cannot have a clear information on how much the facilities were damaged because there is direct attack on the refining facilities in the Middle East and also the supply disruptions of crude oil from the Middle East had an indirect impact on the global utilization rate of the refineries.

[Foreign Language]

So based on the outlook from the institutions, the damage and the disruptions done to the refining facilities in the Middle East was very heavy right after the start of the war. However, they are expecting the facilities to gradually come back to the normal track. As for the size of disruption, it was roughly 2.3 million BD in July, but they believe that it will clearly -- it will slowly clear down to 1 million BD in October this year. However, this is all subject to change depending on the situation in the Strait of Hormuz and the Red Sea.

[Foreign Language]

So to sum up, the global refining facilities are disrupted, but they vary to some degree from one region to another. And subsequently, the inventory level is also up on normal level compared to the past. And therefore, it will take time before the market comes back to the pre-war supply conditions.

[Foreign Language].

So to answer your third question on the CapEx outlook, this year, as you know, the Shaheen project is progressing well. And as was shared with you earlier, other CapEx for this year is KRW 2.1 trillion.

[Foreign Language]

So this year, we are going to wrap up Shaheen project. And in 2027, most of the CapEx will be the ordinary CapEx around maintenance and repair, and we don't have any major investment plan for 2027 so far.

[Foreign Language]

And we are at the moment of setting the budget for 2027. And once the final numbers are out, we will share them with you.

[Foreign Language]

This concludes my answering your third question.

[Foreign Language] The following question is by Hyunryul Cho from Samsung Securities.

[Foreign Language]

So I have 3 questions. What is the background behind the bullish kerosene and diesel margin since June? And what is your outlook on the sustainability of this margin situation? My second question has to deal with Shaheen project. You explained about Shaheen project in earlier when we began the earnings release. But could you just walk us through in more detail about Shaheen project and when it will go into commercial operation? And also explain to us about the government's petrochemical restructuring policy in Ulsan and how this could affect the Shaheen project.

My third question has to deal with the dividends. The company's performance has recently improved significantly. How much do you think this will reduce the company's borrowing? And do you think this will also raise the company's dividend? If so, when and by how much?

[Foreign Language]

So to answer your first question, I believe there are a number of factors that are being reflected in the supply side and also affecting the diesel and kerosene margin. The kerosene and diesel exports from the Middle East have been contracted because of the war and the refineries in Asia are sourcing lighter crude oil, which is affecting the overall utilization rate and the yield and the overall supply of kerosene and diesel.

[Foreign Language]

And we are seeing quite sizable disruptions in Russia's refining facilities because of Ukraine drone attacks, and this is affecting their overall exports of kerosene and diesel. And so is China, which is also restricting its exports as well. As a result, the kerosene and diesel spread, which was in the upper 30 level in Q1 had shot up to $60 level in Q2. And as the geopolitical issues renewed from the middle of July, the spread further widened to over $70 at the moment.

[Foreign Language]

So we do not think this disruptive situation will clear itself in the short term. It is likely to continue in the midterm. And therefore, we're expecting this bullish trend to continue towards the second half of the year.

[Foreign Language]

[Foreign Language]

To answer your question on the Shaheen project, as was presented to you earlier, Shaheen projects target commercial operation is early 2027.

[Foreign Language]

So to walk you through our preparations on June 30, the EPC contractors have submitted to the company the documents related to the mechanical completion, and we are now in the process of checking the process of build inspection and verifying the performance of the equipment and also verifying the documents submitted by the EPC contractors to check whether the contractual requirements needed for mechanical completion have been met or not.

[Foreign Language]

Given the fact that this is a mega project, we are doing the verification work unit by unit and step by step. And in parallel with this, we are also in the process of pre-commissioning and commissioning work. Our plan is to complete the commissioning and the start-up in the fourth quarter of this year. And as I said earlier, we are going to go into commercial operation from early 2027.

[Foreign Language]

And speaking of the petrochemical restructuring in Ulsan, the company is fully aligned with the government's policies to make the petrochemical industry more competitive, and we are closely cooperating with the government's restructuring policy. However, we are seeing some delays in coming up with the restructuring solution.

[Foreign Language]

Well, as you know well, Shaheen project is very cost competitive, which means it will be a very competitive -- it will have very competitive facilities. But at the moment, the companies involved have different interests. So it is taking some time before the companies involved are coming up with an appropriate solution.

[Foreign Language]

Going forward, the company will continue to avail all the company-wide resources and capabilities to ensure safe completion. And at the same time, we will fully align ourselves with the government policies.

[Foreign Language]

To downsize the borrowings and any outlook on any plans to raise dividends, based on the strong performance that the company has been recording recently?

Well, so our plan is to strike a good balance between improving the company's financial structure by reducing the borrowings based on the strong earnings that we have been making recently and also dividends.

[Foreign Language]

So as you know, investment into Shaheen project is now almost over. And however, how much we will reduce the borrowings will all depend on and will be subject to the company's income size and the working capital, which is affected by the oil price. However, in the long term, our plan is to keep the debt-to-equity ratio in the range of 80% to 100%.

[Foreign Language]

So for this year's dividend, it will be paid with the dividend payout ratio maintaining at 20% or above. However, when the company's earnings go up, the dividend will also in 2027 and onwards, we are going to develop the guidelines -- dividend guidelines in the future, and we will share them with you in 2027.

[Foreign Language]

This concludes my answer.

[Foreign Language] The following question is by from YongJin Jung from Shinhan Investment Securities.

[Foreign Language]

I have 3 questions. First is the inventory gains and loss affected by some one-off factors such as the maximum price cap. Second question is what do you think the OSP -- plummeting OSP, how do you think this will affect the company's performance in the second half of the year? And do you think the OSP could recover and go up again because of the renewed geopolitical risks in the Middle East? And my third question is, what is your outlook on the lube base oil business in the second half of the year and for 2027? And also on any outlook on the expansion?

[Foreign Language]

So to answer your first question on the inventory gains and loss in Q2 and the one-off impact. As I presented earlier in Q2, the inventory-related gains is KRW 113.7 billion and the FX related is KRW 116.8 billion.

[Foreign Language]

So as I said earlier in [indiscernible] from lube base oil business. In the refining business, even though the international oil price at the end of June was lower than that at the end of March, it recorded a slight positive because of -- because we treated the crude oil from the inventory and the OSP of crude oil treated in June was high. And in the petrochemical business, it was slightly negative because of reduced naphtha price in Q2.

[Foreign Language]

And as for the impact from the maximum price cap, as you know well, the government made the announcement on this policy on March 13, and it is still ongoing.

[Foreign Language]

So the government also made a notice about compensation, and it will deliberate this on a quarterly basis in the government-led committee and also compensate, and we understand that the government made an extra budgeting to compensate for the refinery loss.

[Foreign Language]

And subsequently, the company expects compensation for the loss incurred as a result of the maximum price cap with some time lag.

[Foreign Language]

However, the amount of loss can vary depending on the formula and assumption. At the moment, the government organized the related committee and is developing the guidelines on what kind of and how to estimate the standard price. And therefore, the overall situation, whether the amount of loss and the compensation to the refiners is all fluid, and therefore, we cannot arrive at any conclusive facts at the moment.

[Foreign Language]

And your second question about the OSP. Since the company mostly sources from Saudi crude oil, lower OSP has a direct impact on the company's margin in a positive note.

[Foreign Language]

So as you know well, we've been seeing very high volatility in the OSP movement lately. The Saudi crude OSP for May lifting went up by $17 from the previous month, which is the record high ever, but it went turned down from June as the geopolitical risks in the Middle East subsided and the OPEC+ moved towards raising the output. In particular, the OSP for August lifting went down by $11 from the previous month, which is also the lowest cut ever in history.

[Foreign Language]

And we are expecting the OSP to remain quite volatile going forward because of the possibility of the Red Sea being blocked on top of the Strait of Hormuz. There is the risk related to crude sourcing from the Middle East. And if the Strait of -- if the Red Sea is indeed blocked, then the Saudi crude will have to make a detour through the Suez Canal and all the way to the African continent, which will extend the transportation period and add additional burden and pressure to Asian refiners in terms of freight and working capital.

[Foreign Language]

So this could move the OSP of both ways. The OSP could go down, if Saudi crude wants to maintain its price competitiveness. However, it could go up if there is restrictions in crude oil supply from the Middle East because of the blockade of the Red Sea.

[Foreign Language]

So if the blockade of the Strait of Hormuz and the Red Sea are entirely and completely cleared, then the oil producers in the Middle East could compete to secure their market share, in which case, the OSP could remain quite low, just like the August lifting OSP.

[Foreign Language]

So at this moment, it's very hard to predict how the OSP will evolve, but we believe it will all be subject to the evolutions in the geopolitical situation in the Middle East.

[Foreign Language]

And I will answer your third question on the lube base oil supply.

[Foreign Language]

As I said in my presentation earlier, we are expecting this high lube base oil supply situation to continue at least until the end of the year or even next year, led mostly by Group III because of the production and logistical disruptions in the Middle East.

[Foreign Language]

And we believe lead the overall lube base oil market conditions.

[Foreign Language]

As for the new capacity expansions, we believe the impact of capacity expansions will be limited until 2027.

[Foreign Language]

Since lube base oil is not a commodity, it usually takes extra time before the new facilities impact the market.

[Foreign Language]

So at the end of 2025, there was a Group II expansion, 1 million tonnes a year in Singapore. However, we understand that there are some partial operational issues there, and it will take -- therefore, it will take some time before the new facilities expansion effect impact the market. And this year, there is a scheduled facilities expansion for Group II and III in India, Saudi Arabia and Poland. However, the production could be adjusted or the schedule could be slightly delayed because of the war in the Middle East.

[Foreign Language]

And therefore, it will be maybe 2027 or the year after that when the new facilities start to see the market and impact the market. And therefore, we believe the we can pull the market conditions to stay very strong for the time being.

[Foreign Language]

This concludes my answer your third question.

[Foreign Language]

Thank you once again for showing your interest in S-Oil, and I want to thank all the analysts and investors for participating in the earnings release. Going forward, S-Oil will continue to engage in transparent and fair communications with the market. And if you have any further questions, please feel free to contact the company's IR team. Thank you very much.

[Foreign Language] This concludes the fiscal year 2026 second quarter earnings resulted by S-Oil. Thanks for the participation.

Good morning. This is Kyung-Don Kang, Treasurer of S-Oil. I'd like to extend my gratitude to our investors and analysts in and out of Korea for joining S-Oil's conference call for Q1 2026 earnings results.

For today's conference call, we have Ju-Wan Bang, our CFO; and IR team leader, Hyedong Jeong and team members.

First, I will take you through the highlights of Q1 results. In Q1, crude oil prices and refining margins remained strong, driven by the Middle East war. Strong refining margins were offset by opportunity losses resulting from scheduled maintenance in March and implementation of domestic fuel price cap. However, rising crude prices increased inventory-related gains, lifting the company's Q1 operating income to KRW 1,231 billion, up significantly both year-on-year and quarter-on-quarter.

Next is the market outlook and the company's response. Despite heightened uncertainty in global crude oil and refined product supply due to the Middle East war, the company maintains stable crude supply and operations through long-term feedstock sourcing and logistics arrangements with the company's parent company.

Next is the progress of Shaheen project. As of the end of April, Shaheen projects EPC progress rate is 96.9% and on track. The company is availing company-wide capabilities to achieve the project's mechanical completion by the end of June 2026. Engineering reached 97.3%, procurement 99.9% and construction 93.6%, with the project entering its final stage. The company is targeting commercial start-up earlier next year after commissioning in the second half of this year.

In preparation for Shaheen start-up, the company is pursuing annual supply contracts to expand its olefin monomer customer base and proceeding as planned with branch pipeline construction for key customers in Ulsan. For polyethylene, the company has secured long-term export contracts and is pursuing customer expansion through premarketing.

Now IR team leader, H.D. Jeong, will get into more details for Q1 performance and market outlook.

Good morning. This is S-Oil IR team leader, H.D. Jeong. Before we begin, please note that Q1 2026 financial results are provisional and therefore, subject to change according to outside independent external auditors review results. First, please refer to Page 5 for Q1 2026 financial results. In Q1, the company posted sales revenue of KRW 8,942 billion, up 1.7% Q-on-Q and operating income of KRW 1,231 billion, up 231% from the previous quarter. On a monthly basis, the company recorded operating income of KRW 420 billion in January and February combined, supported by healthy refining margins, while operating income reached KRW 812 billion in March, driven by inventory-related gains from rising crude prices and the lag effect of crude pricing following the Middle East war.

If you look at each business segment, operating income from the Refining segment rose 455% quarter-on-quarter to KRW 1,396 billion, mainly driven by inventory-related gains of approximately KRW 525 billion from rising crude prices and a KRW 430 billion lagging effect, whereby crude oil price in the lifting month is reflected in cost with a month -- 1-month time lag. In particular, in March, when the impact of the Middle East war began to materialize in full scale, the company effectively posted a loss when excluding oil price-related gains despite strong international refining margins due to scheduled maintenance and the domestic fuel price cap.

Petrochemical segment turned to a profit quarter-on-quarter, recording operating income of KRW 25.5 billion, supported by inventory-related gains. Operating income from the Lube segment declined 18% quarter-on-quarter to KRW 166.6 billion as product spreads narrowed due to a sharp spike in feedstock cost and a lagging impact of product prices. For reference, the company recorded KRW 643.4 billion in inventory-related gains in Q1. In financial and other gains and losses, the company recorded net interest loss of KRW 56.2 billion and net foreign exchange loss of KRW 201.2 billion due to foreign exchange increase. Q1 income before tax and net income came in at KRW 991.4 billion and KRW 721 billion, respectively.

Moving on to financial status. As of the end of Q1 2026, the company held KRW 1,580 billion in cash, while net debt-to-equity ratio was 75%. Despite external volatilities, the company continues to maintain sufficient liquidity and stable financial structure through competitive and timely financing at low interest rates to support smooth execution of Shaheen project and proactive working capital management. Q1 EBITDA came in at KRW 1,191 billion.

Now I would like to go through market environment and outlook by each business segment. First is Refining business segment on Page 7. As mentioned earlier, operating income from Refining segment improved quarter-on-quarter to KRW 1,039 billion, driven by inventory-related gains from rising crude prices and the lag effect of crude pricing. Let me now discuss Dubai crude prices in Q1.

Crude prices stayed around USD 60 per barrel earlier in the year as it reflected concerns of oversupply triggered by OPEC+ production increase, but prices surged as the late February Middle East war and the closure of the Strait of Hormuz escalated concerns around global oil supply disruption. Accordingly, Dubai crude oil price rose from an average of $62 per barrel in December last year to $128.5 per barrel in March this year. Asian refining margins remaining firm in January and February with kerosene and diesel spreads holding near USD 20 per barrel following Q4, supported by seasonal demand, continued Ukraine drone attacks on Russian refineries and sanctions on Russian crude and petroleum products.

In particular, following the outbreak of the Middle East war in late February, kerosene and diesel spreads widened to over USD 100 per barrel in March as crude oil supply disruptions caused Asian refineries to cut their operation in major countries, including China, to restrict exports.

As a result, kerosene and diesel spreads averaged around USD 36 per barrel for the quarter, supporting refining margins. Meanwhile, gasoline spreads declined quarter-on-quarter to USD 5.5 per barrel as product prices failed to keep pace with rising crude prices during the seasonal off-peak period. Tight market environment is expected to persist in Q2 amid ongoing crude and product supply disruptions. Although concerns remain over slower oil demand growth due to high product prices, supply disruptions are likely to outweigh demand softness, driven by high product prices.

Meanwhile, a potential decline in oil prices, depending on the developments in the Middle East war may lead to inventory-related losses, increasing earnings volatility and downside risks. A more detailed outlook for Q2 will be provided in the key business update section with supporting data.

Next is petrochemical business segment. Petrochemical segment returned to profit quarter-on-quarter with operating income of KRW 25.5 billion, supported by inventory-related gains. Let me discuss the market environment in Q1.

The aromatics market improved overall in January and February. PX spreads over naphtha exceeded USD 300 per ton in January on stronger demand from new PTA capacity ramp-ups in China, while benzene spreads over naphtha also improved modestly to above USD 160 per ton on average in the first 2 months of the year, driven by higher demand from downstream facilities in China, which showed improved economics. Following the Middle East war, naphtha supply disruptions sharply raised feedstock cost, while limited pass-through to product prices narrowed spreads in March. As a result, Q1 average PX and benzene spreads partially gave back earlier gains in January and February, reaching USD 263 per ton and USD 119 per ton, respectively.

For olefin downstream products, polypropylene, PP weakened after the Middle East war as higher feedstock costs were not fully passed through to product prices, pushing PP spreads over propylene down to negative USD 25 per ton. PO spreads over propylene also edged down quarter-on-quarter to USD 156 per ton, but remained relatively firm, supported by improved downstream polyol demand following tax policy changes in China.

Let me discuss the outlook for the Petrochemical segment in Q2. Elevated uncertainty over feedstock supply for naphtha, propylene and price volatility is expected to persist, given the prolonged Middle East war. However, Aromatics market environment is expected to be supported by lower supply due to concentrated regional maintenance and the start of the driving season. PP and PO are also seeing reduced operating rates across the region due to feedstock cost pressures, while PO remains relatively resilient in April, supported by improved downstream polyol demand.

Next is Lube business segment. Operating income from the Lube segment declined quarter-on-quarter to KRW 166.6 billion in Q1. LBO market, which has been stable in January and February, became much tighter in Q1 as oil supply disruptions following the Middle East war caused refiners to cut their run rate, reduced supply of the lube-based oil in order to maximize diesel output. It also restricted lube-based oil exports from the Middle East through the Strait of Hormuz. However, lagging impact of LBO prices pushed spreads down Q-on-Q to USD 49.6 per barrel. LBO fundamental is expected to remain firm in Q2, supported by supply disruptions from prolonged Middle East war. LBO spread is showing signs of recovery as LBO prices gradually increase following the rise in feedstock costs with a time lag.

Next is key business update. Let me now discuss the impact of the Middle East war on global oil supply and demand as well as the company's crude supply situation. As the Middle East war continues, uncertainty in global oil market is increasing due to disruptions in crude oil and refined product supply. First, OPEC crude production fell by approximately 9 million barrels per day from 30 million barrels per day in February 2026 to 21 million barrels per day in March due to crude export disruptions caused by the Middle East war.

In addition to crude oil, disruption in refined product supply was also significant. The closure of the Strait of Hormuz caused shipping disruptions from vessels waiting in the region, while attacks on refining facilities in the Middle East, which represent roughly 10% of global refining capacity led to reduced operations at some plants. In addition, refinery runs were reduced at some Asian refineries, which account for about 37% of global refinery capacity that treats Middle East crude oil as feedstock. Refined product supply was further tightened by export restrictions from China, which exported around 700,000 barrels per day in 2025. Meanwhile, concerns over slowing demand growth are rising amid higher Dubai crude price outlook driven by supply disruptions.

Five major institutions revised down their 2026 global oil demand growth outlook from around 1.09 million barrels per day as of February 2026 to 300,000 barrels per day. However, as the reduction in demand growth remains smaller than the decline in OPEC crude production, oil market is expected to stay tight for the time being. Despite heightened uncertainty in oil product supply and demand, the company continues to maintain stable crude supply and operation through its long-term crude sourcing and logistics arrangements.

On average, the company secures 10 crude cargoes a month for facility operation. In March and April, the company sourced an average of approximately 7.5 crude cargoes per month due to scheduled maintenance. For the remaining first half of the year in May and June, the company has already secured an average of 10 cargoes per month to support normal operations. This stable crude supply was made possible in large part by a 20-year crude supply contract with parent company, Saudi Aramco and a 10-year VLCC transportation contract with its affiliate, Bahri. Going forward, the company plans to continue stable feedstock supply and operations based on its long-term contracts.

Last is the progress of Shaheen project. As of the end of April, the Shaheen project's EPC progress reached 96.9% and is progressing as planned. Engineering, procurement and construction reached 97.3%, 99.9% and 93.6%, respectively, bringing the project into its final stage. Engineering has effectively been completed based on pre-mechanical completion with only as-built drawing work remaining in Q2.

To provide additional details on EPC progress, major equipment installation of steam cracker facilities, including cracking heater, tower and pipe-rack module has been completed, along with the TC2C fired heater and storage tank. Internal installation works for the Polymer Automated Warehouse as well as plant-wide aboveground piping and conduit installation and pre-commissioning activities are also underway.

On the marketing side, annual supply contracts for olefin monomers have been secured in preparation for the Shaheen start-up with additional contracts underway to expand the user base. Branch pipeline construction for key customers in Ulsan is also on track to support supplies via pipelines, and they will also be completed in the first half of the year.

For PE, the company is pursuing quality evaluations and early customer acquisition from pre-marketing while also securing long-term expert content. The Shaheen project is scheduled remains unchanged, targeting mechanical completion in the first half of 2026, followed by commissioning in the second half and readiness for a commercial operation thereafter. We will keep you updated on the progress of Shaheen Project.

And this concludes our presentation. Thank you.

[Foreign Language]

[Operator Instructions] The first question will be given by Cho Hyunryul from Samsung Securities.

[Foreign Language]

First question is on after the war broke out, can you elaborate us on how it has affected the changes in the crude oil supply and demand? My second question has to do with the strong margin of [indiscernible] seen compared to the diesel. Could you explain what is causing the strong margin of diesel and also the cause of a relatively bearish margin of -- the strong margin of kerosene and the relative weakness of the diesel margin at the same time?

And my third question has to do with the changes in the refining business environment on the supply and the demand side after the end of the war. And fourth is about our dividend policy. While overall, the Q1 performance seems to be very good, even though a big part of it is the inventory-related gains since it's a good performance in Q, is there any chance that the company pays interim dividends? And if so, how was that -- how big would that be?

[Foreign Language]

So to your first question on the changes in the crude oil fundamentals after the end of the war. Well, first of all, our CDU capacity is 670 MBB and for a normal operation of our facilities, we saw some 10 crude cargoes on a monthly average basis. In March and April, we saw the monthly average of 7.5 crude cargoes, which is a reduction from the average of 10 last year. This is because we had a major T&I in March and April, which comes every 3 or 4 years, and this is not because of the war in the Middle East.

[Foreign Language] And starting from April this year are the facilities that have been under T&I have been completed and they're all starting up one by one in May. So we are going to source 10 crude cargoes, which is the same as last year. And we also secured the crude oil required for normal operation in June.

[Foreign Language] And as for the company's crude oil sourcing, we are reliably sourcing crude through various channels based on very close communication with our majority shareholder, we are sourcing Saudi crude through the Yanbu port in Saudi Arabia. Also, we are utilizing the Fujairah port in UAE. The Saudi Crude store in Ulsan, and we're also leasing the government stockpile oil, and we're also making the most out of the Saharan Blend procurement contract that we have signed.

[Foreign Language] This concludes my answer on your first question.

[Foreign Language] So to answer your second question on the relatively strong jet fuel margin, well, compared to the diesel margin, the jet fuel spread has shown a relative strength since they were broke out because of the relative tightness of jet fuel supply.

[Foreign Language] So if you look at it from a regional perspective, the Europe jet fuel supply is known to be tighter than other regions. As you know, Europe imports a big volume of diesel and jet fuel from the Middle East and their dependence on the Middle East and jet fuel is higher than that of diesel. After the Hormuz got closed, it caused quite disruptions of fuel products in the Middle East and that seems to have had a bigger impact on jet fuel supply to Europe compared to diesel supply.

[Foreign Language] And the jet fuel supply got even tighter because of China, which is the biggest just fuel exporter in the region, immediately banned fuel product export after the war broke out. So all these factors added up to give a relative strength to jet fuel spread compared to diesel.

[Foreign Language] So all in all, we are expecting the fuel product supply to remain tight for the time being. And also, there is a big chance of the middle distillate spreads to show strength for the time being. However, with regard to the relative strength of jet fuel, we are expecting some volatilities in the market.

[Foreign Language] For example, China is showing moves to resume exports of products that have high margin. For example, they permitted the exports of 500,000 tons of products in May. On the demand side, the airliners are responding to the high product prices by adjusting their air flights more towards the higher-margin air schedules and reducing the lower-margin short distance flights.

[Foreign Language] So as I just said, we are seeing changes in how the market players are responding to the high jet fuel spread in terms of both the supply and the demand side. And therefore, we are expecting to see a relatively high level of volatility in the jet fuel market.

This is all I have for your second question.

[Foreign Language]

And to answer your question on how the end of the war will affect the changes in the refining market based on supply and demand. Well, as you said, the impact on the oil supply and demand will change depending on how long the war lasts. A lot of the major institutions believe that oil supply will come back to the normal level step by step if the war comes to an end in the not-so-distant future. However, as you know, during the war, there were strikes in the oil production and refining facilities, which caused indirect and direct damages to these facilities. And therefore, it will be only towards the end of the year when oil supply recovers to the pre-war level.

[Foreign Language] And speaking on the supply side, the product prices increase because of the disrupted supply will hamper the demand growth. And because of that, the demand growth this year is not forecasted to reach what was forecasted at the beginning of the year based on the outlook. However, IMF did not significantly adjust their forecast of the global economic rate for this year, keeping it at 3.1%. So if the war comes to an end and oil price goes down, that will bring demand back to the normal level and the low stockpiling demand at the -- during the war period will also be returned to the normal level. And therefore, there is a chance that the margin will stay favorable for quite a period of time.

[Foreign Language] This concludes my answer on your third question.

[Foreign Language] So to answer your fourth question on the possibility of paying interim dividend and if so, the amount, as was disclosed to the market in our dividend guidelines, our dividend for this year will be 20% or higher of the company's total net income. And we are also considering paying interim dividends because there will be income made in the first half of the year. However, that said, we need to take a more conservative approach when it comes to paying the interim dividend because there are still volatilities and uncertainties surrounding the company's business environment.

And if the oil price goes down, there could be inventory-related loss. So all these factors have to be taken into account when making a decision on the interim dividend. But still so, on an annual basis, we will be paying over 20% or higher of the company's net income.

[Foreign Language] More details of the interim dividend will be determined at the Board of Directors to be held in the second half of the year. And once the decision is out, we will communicate with the market through public disclosure.

[Foreign Language] This concludes my answering your fourth question.

[Foreign Language] The following question is by Lee Yong-Wook from Hanwha Investment & Securities.

[Foreign Language] This is Lee Yong from Hanwha Investment & Securities. So I have three questions to ask. First is about the maximum price cap policy. What is the opportunity loss incurred as a result of this policy? And could you give us any update on the compensation plan? And second question is rather overlapping with the previous question. What is the size of refining capacity in the Middle East that's been disrupted by the war? And what is your outlook on the market supply and demand after the end of the war? And third is, it looks like there is some diversification in the crude sourcing channels. Will this change any production of your refining products in terms of the total product share -- production share?

[Foreign Language] So to answer your first question on the opportunity loss incurred by the maximum price cap policy and discussions and any discussions on the compensation. Well, since the policy of maximum price cap was in [ worse ], we were not able to link the international product price -- international prices to the domestic sales price. And as a result of this, we have been facing sizable loss that otherwise would not have been incurred business as usual.

[Foreign Language] So this is how it will run. The company will ask for the compensation of the loss on a quarterly basis through the certified accounting firm, and the government will establish their compensation plan through the Compensation Committee.

[Foreign Language] But however, there is nothing been determined about the basis that will be used to determine the amount of loss and the methodology. And also, it will be only when the government makes an official announcement and the notice to -- on the compensation amount that will be reflected in the company's profit and loss based on the accounting principles.

[Foreign Language] And to answer your third question on the size of refining capacity that's been disrupted and your outlook on the supply and demand after the end of the war. Well, it is true that some of the refining facilities and logistics infrastructure in the Middle East have been -- have come under attack during the war in the Middle East. However, we are limited in having a full graph of the size of capacity that's been disrupted. This is because some of the facilities are still partially up and running after the strike and others have started up quite quickly after a temporary shutdown.

So all these combined, it's not easy for us to gather information on the actual impact of the strike on a real-time basis. And furthermore, there are also strikes of the storage and logistics infrastructure that could also affect the process operation. And according to the fact, which is the price forecast Intelligence, the refining capacity size in April is 2.7 million BD and their forecast for June and October -- June and August is 2.4 million BD and 1.6 million BD. These numbers all reflect the challenges and disruptions in sourcing the feedstock and also the impact of the strikes as a result of the war. And therefore, there is a very big chance of these numbers changing and getting revised depending on how the war plays out.

[Foreign Language] And as for the outlook, we have also mentioned that earlier, so that will be used as a substitute.

[Foreign Language] And to answer your questions on how the diversified crude sourcing channel is changing the production portion of your refining products. Well, first of all, under normal operation situations, we blend various types of crude oil like air light, air medium and air super light and treat them in our refining facilities to optimize facilities operations.

[Foreign Language] And since the war broke out and Strait of Hormuz got locked out, the company started lifting crude oil from Yanbu port utilizing the vastest pipeline that connects the eastern and the western part of Saudi Arabia, and we've been transporting crude oil via the Red Sea, in which case the portion of [ air light ] goes up and therefore, the crude price gets a little lighter compared to normal times.

[Foreign Language] And these changes in the crude type and the mix could have a partial impact on the CDU operation and also on the production amount of the residue oil that is used as a feedstock to the operating facilities. And therefore, this may require some adjustments in the operating facilities operation rate. But we will take into consideration these crude types that we're feeding in to our facilities and also the demand for each product in the market to flexibly run our facilities in ways that can maximize our profit income for the company.

[Foreign Language] This answers your third question.

[Foreign Language] The following question is by [indiscernible] from Shinyoung Securities.

[Foreign Language] So this is [indiscernible] from Shinyoung Securities.

I have four questions. Well, there are a lot of uncertainties triggered by the war in the Middle East. How is this affecting your company's business? And how are you responding to this? Second is, could you break down the inventory-related impact by business segment? And third is, what is your forecast and outlook of the refining business in the second half in Q2 and the second half of the year and the company's plan for operations? And my fourth question is, it looks like the petrochemical market is picking up these days. Do you think this will bring forward your project Shaheen project completion schedule? And what is your outlook on the project profitability based on the current market conditions?

[Foreign Language] Well, you have asked the questions on how the war in the Middle East is affecting the company's business and what are the strategies that we are employing to respond to them? Well, these geopolitical issues like the war in the Middle East and the lockdown of the Strait of Hormuz trades have created unprecedented level of volatility and uncertainty to our business. As you know, a lot of things have changed on the oil price and the product prices and oil supply and the FX.

[Foreign Language] So in response to this very volatile situation, the company instantly launched the enterprise risk management system and everybody from the top management officers and employees have availed all resources to respond to the rapidly changing market environment with agility. When prices was at its peak in March and April, we have appropriately responded to the situation through very close communication with various stakeholders, including our parent company, Saudi Aramco, the South Korean government and the customers. And by doing so, we reliably source crude oil and also reliably supply the fuel price to the domestic market in alignment with the government's policy direction and also appropriately responded to the needs of our customers at home and abroad.

[Foreign Language] So going forward, based on reliable sourcing, we will do our best to consistently deliver value to various stakeholders, including the shareholders and also meet their expectations. At the same time, we'll also do our best to ensure stable supply of oil to the domestic market and seek maximum income creation for the company based on smooth facilities operation and sales activity.

[Foreign Language] So to answer your second question on the inventory-related impact by business segment, as was presented earlier in the slide, our total inventory-related gains is KRW 643.4 billion. And by business segment, it's KRW 524.8 billion for the refining business, KRW 87.1 billion for petrochemical business and KRW 31.5 billion for business lubricants business.

[Foreign Language] So to answer your second question on your outlook of the refining business in Q2 and the second half of the year. Well, we are expecting the disruptions in the supply to remain the refining margin at quite healthy level in Q2 and towards the second half of the year. For example, in Q2 in April and May, based on the Singapore gasoline spread, it is $25 for gasoline and for diesel, it's about $10.

[Foreign Language] And we have already secured the crude required for normal and CDU operation in May and June. And unless there are any issues popping up in the market, we think we'll be able to run at the normal level in the second half of the year. And for your information, we don't have any major T&I plans during the rest of the year.

[Foreign Language] So to answer your question on the petrochemical market outlook and the Shaheen project, well, as you know, the war in the Middle East has a very huge impact on the global petrochemical business and also creating a very huge high level of uncertainty. And as for the Shaheen project, well, the crude oil and the heavy oil that is produced from our refining facilities are flood into and treated in TC2C facilities to maximize the production of naphtha and the naphtha that we get from TC2C and the existing refining facilities are all entirely flood into the steam cracker to get the petrochemical products. So the fact that we are able to internally source all the feedstock, including naphtha for Shaheen project gives a high level of reliability to our facilities in terms of feedstock sourcing and operations.

[Foreign Language] And as for the schedule, there is no change in the schedule so far. And as we mentioned earlier, our target is mechanical completion at the end of June, commissioning in the second half of the year and commercial operation in early 2027. And as for the profitability in the early operations, well, at this moment, it's not easy for us to tell you how big the profitability will be because of the high level of uncertainty we're seeing because of the war in the Middle East. But we do believe that the petrochemical spread will gradually widen in the mid- to long term, and this will eventually have a very positive impact on the company's performance.

[Foreign Language] So our scheduled time is up, and thank you for your attention to S-Oil's Q1 performance in 2026. As always, we will engage in transparent and fair communication with the market. And if you have any further inquiries, please feel free to contact S-Oil's IR team. Thank you very much.

[Foreign Language] This concludes the fiscal year 2026 first quarter earnings results by S-Oil. Thanks for the participation.

[Foreign Language]

[Interpreted] Good morning. This is [ Ki Bang, ] Treasurer of S-OIL. I'd like to extend my gratitude to our investors and analysts in and out of Korea for joining S-OIL's conference call for Q4 2025 Earnings results.

For today's conference call, we have CFO, JW Bang; IR team leader, YR Tang; and team members. First, I will take you through the highlights of Q4 results. In Q4, the company's operating income significantly improved from the previous quarter and year-on-year, recording KRW 424.5 billion. Operating income of refining and lube businesses surged, thanks to strong product spread. Petrochemical business also witnessed reduced loss supported by continued recovery in PX spread.

Next is market outlook. In 2026, we're expecting favorable market condition driven by global demand growth that outpaces net refining and PX capacity expansion. Refining margin is projected to remain stable, thanks to less cost burden resulting from lower oil prices and OSP. Next is the progress of Shaheen project. EPC progress of Shaheen project is 93.1% as of January 14, and we are making progress as planned ahead of the mechanical completion in the first half of this year. We are at the final stage of engineering and procurement, progressing at 97% and 99%, respectively.

Construction is 86% complete. Our goal is to start commercial operation early next year after going through commissioning in second half this year. We are also working on annual term supply contract with olefin monomer customers based on the upcoming start-up of Shaheen project. Pipeline connection to key customers in Ulsan is ongoing as well. For PE, premarketing activities are -- sorry, for PE, premarketing activities are underway to expand our PE customer base, and we are in discussion to make term export agreement. We'll leverage all our capabilities to ensure the successful delivery of the project and live up to the expectations of customers -- expectations of investors.

Now Tim Leader, YR Chang will get into more details for Q4 performance with the following slides.

[Interpreted] Good morning. This is Sy IR Tim Leader, YR Chang. Before we begin, please be noted that Q4 2025 financial results are provisional and therefore, subject to change according to outside independent external auditors' audit results. First, please refer to Page 5 for Q4 2025 financial results. The company's Q4 sales revenue recorded KRW 8,792.6 billion, up 4.5% from the previous quarter. Operating income jumped by 85% quarter-on-quarter to KRW 424.5 billion.

If you look at each business segment, operating income of refining business surged from the previous quarter, recording KRW 225.3 billion, backed by strong spread of major products. Petrochemical business witnessed its operating income narrowed to minus KRW 7.8 billion as PX spread continued to recover. Operating income of lube business also went up by 55% from the previous quarter, recording KRW 209 billion, driven by widened product spread. For your reference, inventory-related impact reflected to Q4 operating income is minus KRW 87.4 billion. In finance and other income, we had minus KRW 56.9 billion of net interest gain and KRW 73.5 billion of net FX gain due to increased FX rate. Q4 income before tax and net income recorded KRW 317.9 billion and KRW 265 billion, respectively.

On an annual basis, the company's 2025 operating income inched down year-on-year, recording KRW 288.2 billion. However, we swung sharply back into black, posting KRW 225.8 billion and KRW 216.9 billion in income before tax and net income, respectively. Moving on to financial status. The company's cash balance as of 2025 end is KRW 1.843 billion and net debt-to-equity ratio is 67.9%. Despite volatilities in the external environment, the company has maintained enough liquidity and stable financial structure by financing at competitive interest rate rise and time and managing working capital proactively to ensure smooth execution of the Shaheen project. Cumulative EBITDA on a whole year basis stood at KRW 979 billion.

Now I'll go through market environment and outlook by each business segment. First is refining business. Dubai crude price declined during Q4 due to concerns over added supply resulting from OPEC+ output increase falling from an average of $70 in September to $62 in December.

In Q4, operational glitches of global facilities tightened supply in the Asian refining market. Nigeria's new facility, Tangote Refinery, El Segundo refinery in California and Al-Zour refinery in Kuwait all experienced operational disruption. Ukraine's drone attack disrupted the operation of Russia's refining facilities and shutdown of Phillips 67 refinery in California affected market fundamentals as well. In addition, sanctions on Russia imposed by the U.S. and EU added worries over product supply interruption at a time when demand for diesel and kerosene remained healthy because of the high heating season in the Northern Hemisphere.

As a result, spread of diesel and kerosene rose sharply to $25 per barrel on average, driving refining margin improvements. Despite downward adjustment in the end of the quarter following the fire negotiations between Russia and Ukraine, diesel and kerosene spread is still maintained at a healthy level of roughly $20 per barrel. In Q1 2026, we're expecting limited supply to continue due to continuous operational disruption of the Dangote refinery and Russian refineries as well as scheduled closure of a Valero refinery in California amid firm demand of products, including diesel and kerosene. As we enter into regular T&I season in the region from late March, demand for inventory buildup may provide additional support to refining margin. I will share more details on 2026 annual outlook in key business update with specific data.

Next is Petrochemical business segment. Operating income of petrochemical business narrowed in Q4 from the previous quarter, recording minus KRW 7.8 billion as a result of upward trend in PX spread over naphtha and PO spread over propylene. If we look at Q4 market conditions, PX market continued its bullish run backed by start-up of new PTA facilities in China that drove up PX demand and robust downstream polyester demand. As a result, PX naphtha spread recorded $266 per ton in Q4. Even though Q4 is off season, strong demand is keeping PX spread high at above $300 since mid-December. By contrast, benzene market continued bearish sentiment as imposition of tariffs lowered U.S. import demand and benzene downstream facilities, including style monomore operated at a low level.

In Q4, benzene naphtha spread stood at $103 per ton. As for Olefin Downstream, PP spread over propylene recorded $30 per ton, down from the previous quarter as supply increased after the completion of regular T&I in the spread went up from the previous quarter to $176 per ton due to disrupted supply of major PO manufacturers in China and seasonal demand supported by Black Friday and Christmas. Next is Q1 2026 outlook of our Petrochemical business segment. We project PX market to stay bullish based on expectations for tight market fundamentals and regular T&I of PX production facilities in the region that will reduce the supply. We'll further explain tight market -- tight supply-demand balance outlook in key business update with the specific data. As for benzene, PP & PO, we are forecasting supply to increase continuously for all products due to new facilities starting up mainly in China. [indiscernible] G&I in the region is expected to partially offset supply increase of benzene.

At the same time, demand for PP and PO is anticipated to improve gradually as uncertainties around global trading environment start to ease. Next is Lube business segment. Operating income of roof business in Q4 went up from the previous quarter to KRW 207 billion. Despite seasonal demand slowdown, LBO spread rose quarter-on-quarter due to lagging effect driven by lower feedstock cost, recording $55.2 per barrel. Q1 this year, inventory buildup ahead of spring lubricant change season is projected to support market sentiment, offsetting added supply caused by regional capacity expansion. Though we are expecting highly volatile LBO spread affected by price fluctuation of feedstock, including crude, we'll make utmost effort to maximize our income are responding swiftly to changing market conditions.

Next is key business updates. First is outlook on the business environment. We project bullish market sentiment as global demand growth for oil and PX will outpace net addition from capacity expansion. Starting from the left bar graph, global oil demand is expected to grow by 1 million BD, exceeding net addition of 790,000 BD generated both from capacity expansion and closure of refining facilities. This tight market fundamentals will go beyond 2026 and supply will fail to catch up with the demand, which is expected to support a favorable business environment for refining business.

Moving on to the bar graph at the center. PX demand growth outlook in 2026 stands at 3.75 million tons. In contrast, net PX capacity expansion will be limited to 1 million tonnes. Moreover, market expectations on tight supply-demand balance of PX are running high for this year as market intelligence suggests added capacity will start up at the end of this year. In addition to strong, we also expect lower oil price and OSP for Saudi Arab crude to ease cost burden on the company. The graph on the right shows OSP trend for Saudi Arab light crude. OSP for crude that will trade in Q1 2026 stands below past 5-year average, which means it will likely have a positive impact on the company's refining margin. Last is the progress of Shaheen project. EPC progress rate as of January 14 is 93.1%, going smoothly as planned. Engineering and procurement progress rate is nearing completion at 97% and 99%, respectively.

Based on pre-mechanical completion, engineering is complete and all that remains is as built drawing work scheduled in Q2. As for the progress of EPC in further detail, we completed the mechanical installation of steam cracking furnace, installation of TC2C high-pressure heat exchanger and construction of a polymer automated warehouse. We are also working on installation of storage tank aboveground pipeline and conduit. As for marketing activities, we are discussing annual ton contracts with major customers considering Shine project start-up. Currently, we are building branch pipeline to support sales to our key customers in Ulsan and targeting completion in the first half of this year. Speaking of PE, we are carrying out quality evaluation and supply to customers through premarketing. We are also securing more customers and discussing term export contracts. There is no change in project schedule.

We are targeting first half of 2026 for mechanical completion and second half for start-up to be ready for commercial operation. We'll keep you updated on the progress of the Shaheen project. This concludes my presentation. Thank you.

[Operator Instructions] The first question will be given by Yang from Shinhan Investment Securities.

[Foreign Language]

[Interpreted] This is Eung- Jung Lee from Shinhan Investment Securities. I have 2 questions. First is on the global supply interruptions or disruptions in the first quarter of this year. How big will that be in this quarter? And second question has to do with the global expansion schedule for 2026 and 2027. I would like you to break it down into the expansions and the shutdown.

[Foreign Language]

[Interpreted] So to answer your first question on the global supply disruptions, as I said during my statement, in Q4, there were several factors that caused the supply disruptions. The Dangote refinery in Nigeria had a shutdown and also the U.S. West Coast also had a permanent shutdown. And there was also the attacks by Ukraine against Russian refineries.

[Foreign Language]

[Interpreted] So starting with the shutdown in the U.S. West Coast, the 160 MBD Phillips 66 refinery based in Los Angeles started the phase shutdown from October last year, and we understand that they had a full and complete shutdown at the end of December.

And for the 150 MBD Valero refinery, which was announced to shut down this year, it is planning to have a phase shutdown from February this year, and their plan is to have most of the shutdown by April this year.

[Foreign Language]

[Interpreted] And as for the El Segundo refinery in the United States and Al-Zour Refinery in Kuwait, both of which had supply disruptions, operational glitches in Q4 last year, are known to have started up again at the end of last year and the beginning of this year. And for the Dangote refinery in Nigeria, which had operational glitches throughout 2025, started the T&I of its RFCC, is in the middle of T&I of its RFCC in January this year.

[Foreign Language]

[Interpreted] And as for the Russian refineries, the Ukraine continued their intensive tax on the refining facilities in Russia from the second half of last year. So based on the CDU capacity, about 500,000 BD in November last year and about 300,000 BD in December last year were affected in terms -- because of the operational glitches. And not only the refining facilities, but the offshore oilfield facilities in Russia and the export port terminals are also targeted by the drone attacks, which is also resulting in operational glitches as well.

[Foreign Language]

[Interpreted] And as for the global T&I, it is going to enter into the T&I season in spring and will gradually pick up to reach 7.8 million BD in April this year. This concludes my answer.

[Foreign Language]

[Interpreted] And as for the global expansion schedule in 2026 and 2027, for this year, the net increase of the refining capacity is 790 MBD out of -- so if I break it down, the capacity expansion is 1.5 million BD and the shutdown is 800 MBD. And most of these new capacity expansions are clustered in the second half of the year.

[Foreign Language]

[Interpreted] And as for the new expansions, we understand that most of it will take place in India, but there is a tendency in India for these capacity expansions to be delayed to some extent. So some of it will be delayed to the end of the year or even next year.

[Foreign Language]

[Interpreted] And as for 2027, the net increase is only 50 MB. If I break it down into the expansion and the shutdown, the expansion is 140 MBD and the shutdown 90 MBD. For 2028, the capacity expansions and the shutdown will almost balance out each other, which means there will be no net increase expansion, 300 MBD and shutdown 300 MBD as well.

[Foreign Language]

[Interpreted] And as a result, we're expecting the demand increase to outpace the supply increase, which will create a favorable market fundamentals to the company in the longer term. That's the end of my answer.

[Interpreted] The following question is from Lee Yong-Wook from Hanwha Investment Securities.

[Foreign Language]

[Interpreted] Good morning this is Lee Yong-Wook from Hanwha Investment Securities.

I have 3 questions. First is we're seeing the OSP downward trend. Could you tell us what is causing this downward trend? And how do you see its outlook? Second is what is SOL's T&I plan and schedule for 2026? And third is, could you update us on the Shaheen project schedule?

[Foreign Language]

[Interpreted] So to answer your first question on why OSP is coming down, it has been coming down since November last year. Based on a light, the December lifting OSP was $1 per barrel, January lifting $0.60 per barrel and February lifting $0.30 per barrel.

[Foreign Language]

[Interpreted] So this downward trend of the OSP is working in favor of the company in terms of the cost structure. And this lower and [indiscernible] OSP will be reflected in the company's Q1 performance in a meaningful way. We attribute the latest downward trend of OSP to a number of factors. The cease-fire talks between Russia and Ukraine is raising the possibility of end of the war, and the global market has -- ample supply of crude at the moment.

[Foreign Language]

[Interpreted] So considering these various market indicators, there's also a possibility of the OSP falling below 0. However, there are a number of factors that could escalate the volatility of OSP such as the tariff issues stemming from the United States and other geopolitical issues. And therefore, we plan to constantly monitor the OSP trend going forward.

[Foreign Language]

[Interpreted] So to answer your second question on the company's T&I plans for 2026, we are going to have a turnaround for the #2 CDU, #1 PX, #2 RFCC, PO & PP plan starting from March this year, and it will last for a month or two.

[Foreign Language]

[Interpreted] the details of schedules are subject to change depending on the circumstances and to stockpile the inventory and optimize the process operations in a way that maximizes the company-wide margin. And by doing so, we plan to keep the opportunity cost to minimum and maximize profitability. This answers your question.

[Foreign Language]

To update you on the Shaheen project schedule, as we stated earlier, we have the empty target mechanical completion target in the first half of the year. And in the second half of the year, we are going to do the commissioning and commercial operation at the beginning of [indiscernible] Other than that, I would like to give you elaborate more on our investment balance and our marketing plan as well.

[Foreign Language]

[Interpreted] So the total investment for Shaheen project is KRW 9.258 trillion. And until the end of last year, we executed KRW 7.6 trillion, and the balance for this year is KRW 1.64 trillion.

[Foreign Language]

[Interpreted] So on the marketing plan for Shaheen project after the commercial operation, we've actually signed a number of MOUs with our customers in Ulsan Industrial Complex to sell our products. That was -- and the MOUs were all signed after the FID of our project. And from -- we are also discussing with our customers to sign the annual supply contract with them starting from the second half of this year.

[Foreign Language]

[Interpreted] And as for the pipeline connection with our customers, we've also constructed -- we have all constructed the U, the pipelines that will connect Ulsan and Ulsan. And for the branch pipelines that will take all our products to our customers in Ulsan area, we plan to complete them in the first half of this year.

[Foreign Language]

[Interpreted] And as for the premarketing of the company's polyethylene, we have purchased the products that have the equal specification that we will be getting from our new PE plants. We purchased them, and we've supplied them to our customers in [ Ulsan ] and the quality test is underway. And also, there are discussions with our customers overseas to sign term export contracts as well. This answers your question.

[Interpreted] the following question is from Cho Hyunryul from Samsung Securities.

[Foreign Language]

[Interpreted] I am Cho Hyunryul from Samsung Securities. I have 4 questions. First is since Q4 last year, the kerosene and diesel margin is quite strong. What is the background behind this? And what is your outlook? Second question is, how do you think the latest geopolitical events such as the ones in Venezuela and Iran will have on the company's business?

And third is, what is behind the strong PX market these days? And what is your outlook? And fourth is the company's 2025 performance seems to be -- 2026 performance is likely to be better than the last year. Do you think this will have an opportunity to expand the company's dividend?

[Foreign Language]

[Interpreted] To answer your first question, since Q4 last year, the diesel and kerosene spread showed a very -- was very bullish. First of all, the high season for heating fuel in the Northern Hemisphere and the winter season boosted the demand for kerosene. And also, there was some strong jet fuel demand during the year-end and your beginning holiday season. The permanent shutdown of Phillips 66 refinery in Los Angeles caused more export volume towards the United States, which all added up to keep the spread strong.

[Foreign Language]

[Interpreted] And the market was further tightened by tightened sanctions against Russian crude oil and products by the EU and the United States and the continuous drone attacks by Ukraine, which dropped the volume out of Russia.

[Foreign Language]

[Interpreted] And as for the latest market conditions, some of the facilities that had operational glitches are back on track now. And as a result of that, the spread slightly narrowed compared to Q4. However, the spread is still maintaining a solid trend.

[Foreign Language]

[Interpreted] Going forward, how the cease-fire talks between Russia and Ukraine play out could create some volatility in the market. However, we're expecting the market conditions to be supported by a number of factors. The demand for heating fuel will continue towards the end of this quarter. The end of the year and beginning of the year is creating solid demand. And there is also sanctions against Russia and the drone attacks against Russia, which is impacting supply. This is the end of my answer.

[Foreign Language]

[Interpreted] So to answer your second question and how the geopolitical situations in Venezuela and Iran will have the coal conflicts had an upward pressure on oil price in the short term, but they don't last for a long time because if we combine all the market views, when there is a geopolitical confrontation, they do affect the oil price in the short term. However, in the longer term, they have little impact. This is because there is a trend towards higher supply of oil in the global market. And therefore, we believe in the longer-term oil price will come down.

[Foreign Language]

[Interpreted] And to speak on the refining margin, it is known that the small refineries in China are importing crude from Venezuela and Iran. But if more Venezuelan crude oil flows into the United States in lieu of China and Iran's crude exports go down, this means there will be some disruptions and interruptions in supplying cheap crude oil to these marginal players in China. And this will lower their operation rate and will have -- will hopefully have a positive impact on the refining margin in Asia.

[Foreign Language]

[Interpreted] And although the timing and the likelihood remain uncertain, if more heavy and sour crude oil is produced from Venezuela, that will create intensified competition between the fuel oil from Venezuela and the heavy oil from the Middle East, which could lower the OSP on top of more crude oil into the market, and this will hopefully have eased the cost burden on the company.

[Foreign Language]

[Interpreted] And to answer your third question on the sustainability of the PS market conditions and its outlook, the spread has been over $300, thanks to the strong demand from the downstream side. And for this year, the regional PS capacity expansions are limited, whereas the polyester demand, which is the downstream in China will show a strong growth of 4% to 5%, which will support the market, and we're expecting this situation to continue.

[Foreign Language]

[Interpreted] And if I break it down into quarter-by-quarter in Q1, the supply will be limited because of the T&I -- intense T&I of the PX facilities in the region. And in Q2 and Q3, there will be higher demand for gasoline blending because of the driving season in the United States, which will support the PX market.

[Foreign Language]

[Interpreted] And if I look at the market in the longer term, the less competitive PTA and polyester players will shut down, which will partially ease the oversupply and subsequently improve the margin of the bigger players. And in line with the gradually growing demand for polyester, the bigger players will have to additionally improve their operation rate, which will support the PX demand and the market conditions. So in the mid- to long term, we are expecting the market conditions to be favorable.

[Foreign Language]

[Interpreted] This is CFO, JW Bang. To answer your question on our dividends, we have a dividend policy whereby we want to maximize the shareholder value in the longer term. And when we do so, we look into a number of factors on a combined basis. They are our business performance, the company's financial structure and the available -- and securing the available resources for the company's sustainable growth and the shareholder return. In February 2025, we disclosed the company's dividend guideline of keeping the company's dividend payout ratio for fiscal year 2025 and 2026 at 20% or above of the annual net income. This is to protect the shareholder value even though we are investing in the mega Shaheen project.

[Foreign Language]

[Interpreted] And as for the 2025 year-end dividends, we will fully comply with the dividend guidelines and the decisions will be made by the Board of Directors. And when any decisions on the dividend record date and the dividend amount is decided by the Board of Directors, we will immediately disclose them to you.

[Foreign Language]

[Interpreted] And as for the 2026 dividend, when the company's income level goes up this year, our dividend amount will go up correspondingly in parallel, and we could also consider a slight increase in the company's dividend payout ratio if our income goes up. And for the dividend guidelines for 2027 and onwards, we will set them by looking into the market conditions and the company's financial plans, and they will be up for discussions by the Board of Directors later. And once they are determined, we will share with you through disclosure. This answers your question.

[Interpreted] The following question is by Jeon Yu-Jin from iM Securities.

[Foreign Language]

[Interpreted] I have 2 questions. I'm from Investment Securities. First is about the profitability, the high profitability of the base oil business in Q4. What is the background behind that? And what is your understanding of the global capacity expansion for Group 3 from 2025 to 2027? And what is your profitability guideline? And my second question has to do with the restructuring of petrochemical industry ongoing in Ulsan. Could you give us some updates on how it is going?

[Foreign Language]

[Interpreted] Okay. So to answer your first question, how the Q4 base oil performance was better than what the market expected. Well, the composite product prices slightly dipped. However, the oil price and the feedstock VGO price fell a little more, which as well a little more, and there was a lagging impact. But time lagging, which caused the impact. But overall, because of that, the overall Q4 market was quite favorable. And as for the 2025 to 2027 capacity guidance, which is mostly around Group 3, for this year, we are expecting about 660 KTA and mostly, it will be from India and Saudi Arabia. But for 2027 and onwards, we will see about a total of 1.5 million tons of capacity additions in Germany, India, Korea and China. However, the timing remains a little uncertain. And if you combine the 2026 and 2027 total capacity additions, it will be about 6% of the actual supply in 2025.

[Foreign Language]

[Interpreted] For the new capacity additions, could pose a pressure on the supply side. However, some of the capacity expansions tend to be delayed in some regions like India, and therefore, there will be a time lag until it impacts the market overall. And as for Group 3, the demand growth will outpace the supply growth. The demand growth will be 2.7% and supply 2.4%. And therefore, the supply volume will keep a boost of the rising demand and slowly be digested in the market.

[Foreign Language]

[Interpreted] And other than the existing Group 3 players, there are new players who were only in Group 1, but will now newly move into the Group 3 market. And for these players, it's going to take quite a long time for them to develop the formulation for premium leased oil and secure the reliability. And therefore, part of the newly expanded volume will only enter into the market from 2027 and 2028 onwards. This answers your question.

[Foreign Language]

[Interpreted] So to answer your second question on the petrochemical industrial restructuring, as you know very well, the government is trying to make the Korea's petrochemical industry more competitive. That is their goal. And we are fully aligned with the company -- with the government's policy to make the petrochemical industry more competitive, and we're in full collaboration with the government.

[Foreign Language]

[Interpreted] So to be more specific, we are investing in the high-tech, high-efficiency facilities in order to contribute to higher competitiveness of Korea's petrochemical industry which took part in the voluntary agreement -- the government's voluntary agreement on restructuring the petrochemical industry and also to part in the joint consulting with the petrochemical players in Ulsan Industrial Complex and submitted the proposed business restructuring plan to the government this fall, which all show that we are in full collaboration with the government's restructuring policy.

[Foreign Language]

[Interpreted] So the company's Shanghai project will significantly contribute to the competitiveness of petrochemical industry and the players in Ulsan. This is because we are going to enjoy remarkable cost competitiveness and production efficiency based on which we'll have global competitive edge from our facilities and allow us to reliably supply to our customers competitive products.

[Foreign Language]

[Interpreted] So we're not only going to contribute to further advancement of the local Ulsan economy, but by having our customers substitute their import demand, we will also significantly contribute to the national economy of Korea as well as the trade balance.

[Foreign Language]

[Interpreted] And as such, we plan to build all our company-wide resources and competency to ensure that Shaheen project is safely completed and reliably operated and thereby meeting the expectations of the government and all the investors. This answers your question.

[Foreign Language]

[Interpreted] Once again, I would like to thank all the investors and analysts for showing your keen attention to S-Oil. As always, we are committed to communicating with the market in all transparency and fairness. If you have any further questions about our Q4 performance, please feel free to contact our IR team. Once again, thank you very much for participating in the company's earnings release for Q4 last year. Thank you very much.

[Foreign Language]

[Interpreted] This concludes the fiscal year 2025 fourth quarter earnings results by S-Oil. Thank you for your participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good morning. This is Katie Bang, Treasurer of S-OIL. I'd like to extend my gratitude to our investors and analysts in and out of Korea for joining S-OIL's conference call for Q3 2025 earnings results. For today's conference call, we have CFO, J.W. Bang; IR team leader, H. D. Jeong; and team members.

First, I will take you through the highlights of the Q3 results. In Q3, the company recorded operating income of KRW 229.2 billion, which is a significant increase from Q2 and year-on-year. Refining business swung back to [indiscernible], thanks to the significant improvement in operating income resulting from strong spread of major products and the elimination of one-off factors from Q2. Petrochemical business witnessed reduced loss backed by continuous recovery in PX spreads and the operating income of Lube business inched up from the previous quarter.

Next is market outlook. In Q4, seasonal demand for heating oil is expected to drive a steady global oil demand. On supply side, however, we anticipate operational glitches of global refining facilities and the shutdown of obsolete facilities to tighten supply. As a result, refining margin is expected to remain strong in Q4, mainly for diesel and kerosene.

Next is the progress of Shaheen project. Project is 85.6% complete as of October 22, according to the plan. We are at the final stage of engineering and procurement with progress at 27% -- with progress at, sorry, 97% and 96%, respectively. Construction is 73% complete. We're also working on long-term supply contracts with customers to accelerate market entry. Branch pipeline connection to key customers in Ulsan is ongoing and installation of main pipeline for product sales is already completed.

For polyethylene, premarketing activities are underway, and we are reinforcing polyethylene technology development and research foundation of TSMB center to support customers. We'll leverage all our capabilities to ensure successful delivery of the project and leap up to the expectation of investors. Now Team Leader, H. D. Jeong will get into more details for Q3 performance with the following slides.

Good morning. This is S-OIL IR Team Leader, H. D. Jeong. Before we begin, please be noted that Q3 financial results are provisional, and therefore, subject to change according to outside independent external auditors' audit results. First, please refer to Page 5 for Q3 financial results. The company's Q3 sales revenue climbed up from the previous quarter, recording KRW 8,415.4 billion. Returned to profit with a significant increase in operating income that stood at KRW 229.2 billion. If you look at each business segment, operating income of refining business surged from the previous quarter to KRW 115.5 billion, turning positive. This is driven by faded one-off negative factors from Q2 and strong spread of key products.

Petrochemical segment's loss narrowed from the previous quarter, recording minus KRW 19.9 billion in operating income as PX saw continued recovery of spread. As for Lube business, demand that remained steady led to a slight increase in operating income compared to the previous quarter, recording KRW 133.6 billion. For your reference, inventory-related impact reflected to Q3 operating income is minus KRW 4.8 billion.

In finance and other income, we had minus KRW 59.8 billion of net interest gain and minus KRW 90.2 billion of net FX gain due to increased FX rate. Q3 income before tax and net income recorded KRW 81.5 billion and KRW 63.2 billion, respectively.

Moving on to financial status. The company's cash balance as of Q3 end is KRW 1.317 billion and net debt-to-equity ratio is 78.2%. Despite volatilities in the external environment, the company has maintained enough liquidity and stable financial structure by financing at competitive and low interest rate rise and time to ensure smooth execution of the Shaheen project. Cumulative EBITDA for the first 3 quarters this year stood at KRW 466 billion.

Now I'll go through market environment and outlook by each business segment. First is the Refining business segment on Page 7. Despite output increase by OPEC+, Dubai crude price remained steady at around $70 during Q3 due to geopolitical risks and sanctions on Russian crude imposed by the U.S. In Q3, spread of refining products, mainly diesel and kerosene in Asia regional market went up as disrupted operation of Russian refining facilities affected by drones and shutdown of Lindsay refinery in U.K. tightened supply. We are expecting healthy refining margin to continue into Q4, driven by limited supply resulting from operational failure of the Dangote refinery in Nigeria and El Segundo refinery in California. The shutdown of obsolete facilities, including Phillips 66 in L.A. is also expected to support the trend.

Moreover, demand for heating oil in high season is anticipated to further pressure spread of diesel and kerosene. I'll share more details on the outlook in key business updates with specific data.

Next is Petrochemical business segment. Q3 operating income narrowed from the previous quarter, recording minus KRW 19.9 billion as a result of a continued upward trend in PX spread. If you look at Q3 market conditions for [indiscernible] products, PX market continued its bullish run driven by start-up of new PTA facilities in China and steady downstream demand. As a result, PX naphtha spread recorded $252 per ton in Q3. By contrast, benzene market remained bearish as imposition of a reciprocal tariff, lowered the U.S. import demand and start-up of a new benzene facility in China added supply. Q3, benzene naphtha spread stood at $138 per ton.

Moving on to olefin downstream, both PP and PO market weakened due to increased regional supply and the delayed demand recovery caused by uncertainties arising from tariff tension between the U.S. and China.

Next is Q4 outlook of Petrochemical business segment. First, [indiscernible]. While new downstream facilities in China may create more demand for both PX and benzene, we anticipate that to be offset by oversupply during gasoline off-season. For olefin downstream, we expect market condition to improve with seasonal demand for PT and PO backed by Black Friday and Christmas.

Next is Lube business segment. Operating income of Lube business in Q3 went up from the previous quarter to KRW 133.6 billion. Market conditions remain at similar level to the previous quarter, thanks to healthy demand. We project a stable market in Q4 as well despite the seasonal low since there will be regular T&I of several facilities and firm demand mainly from India.

Next is key business updates. First is outlook on the business environment. We have a healthy refining margin outlook for Q4 due to seasonal demand for heating oil amid the firm global oil demand and supply contraction caused by facility closures and operational disruption. Starting from demand side at the left bar graph, we project net refining capacity reduction for this year as closures of aged global refining capacity will outpace new capacity expansion. Already, fire in U.S. El Segundo refinery and the disrupted operation of Russian refineries caused by drone attacks have tightened supply. We foresee a favorable business environment from demand side as well.

Let's look at Q4 global demand outlook at the right graph, that is expected to grow compared to Q3, supported by higher demand, mainly in Asia and Middle East. As Northern Hemisphere enters winter season, we project to see further improvement in diesel and kerosene spread.

Next is the progress of the Shaheen Project. Its progress rate as of October 22 is 85.6%, going smoothly as planned. Engineering and procurement progress rate is nearing completion at 97% and 96%, respectively. Construction is 73% complete. As for EPC, we completed the installation of a pipe crack module of steam cracker. Furnace and TC2Cure installation is in progress. We are also building automated warehouse as planned and have already completed the installation of the key polymer units. Additionally, test for process control system is ongoing after completing installation.

As for market activities, we are discussing long-term contracts with customers to ensure smooth product sales. We'll use main pipeline from Pan, where our refinery is located to Ulsan Petrochemical Complex to support sales to customers in Ulsan. Currently, we are working on branch pipeline connection to key customers after completing the construction of main pipeline. Pre-marketing activities for PE products have started to secure customers and PSD center is enhancing its readiness to provide technical support for PE. Target mechanical completion for Shaheen Project is the first half of 2026, commissioning in the second half of the same year and commercial operation in 2027. We'll keep you updated on the progress of Shaneen Project. This concludes my presentation. Thank you.

The Korean presentation is still ongoing, so please wait for a moment. The Q&A session will start shortly.

[Operator Instructions] The first question will be given by [indiscernible] of [indiscernible] Securities.

[Interpreted] This is [indiscernible] from [indiscernible] Securities. I have 2 questions on the fuel market. First is with regard to the refining margin. Lately, the refining margin has been quite bullish, whereas the oil price remains bearish, and I attribute this to some supply disruption. How do you foresee the refining margin continuing until 2026? My second question has to do with the fact that although the oil price is bearish these days, it looks like the OSP from the Middle East is on a bullish mode relatively speaking. What is the background behind this? And how do you see this continuing until 2026? What is your outlook?

[Interpreted] So to answer your first question, in October, the international oil price exhibited quite a big fluctuation and volatility. This is because of OPEC output rate and also U.S. sanctions against Russia, which caused India to stop importing crude from Russia. And because of the dynamic changes in the trade flow of Russian crude oil, we're expecting to see the volatility of oil price continuing for the time being.

So institutions are forecasting the Dubai benchmark index to stand in the upper $60 level towards the end of the year. And as for the OPEC+, the output raise took place rather quickly, but there is the news that they will be discontinuing the output raise for -- on a temporary basis in the first quarter of next year. And given the fact that the breakeven price of the U.S. shale producers is in the early to mid-$60 level, we're not seeing -- we're not expecting the oil price to keep falling down. We're expecting it to be quite limited.

And as for the refining margin, we're seeing factors working both on the supply and the demand side. First, speaking of the supply side, the facilities are being shut down or being shut down. Some of them include the Phillips 66 facilities in the United States and the Lindsay refinery in the United Kingdom. Second is about the Dangote refinery in Nigeria and Elindo refinery in California, the United States, where there have been some shut some operational glitches and disruptions. Third is also disruptions in the Russian refining facilities caused by the drone attacks and add to this some export restrictions.

And on the supply side, as you know, the Northern Hemisphere is entering into the high heating oil season. According to the market intelligence, most of the inventory surplus has been exhausted starting from October. And add to this, the cold winter -- the cold weather in the winter season, and there is a forecast that Europe will see higher sales of heating fuel going forward. In the U.S. East Coast and Europe, the average temperature in October was lower than the last 5-year average, and this is also expected to have a positive impact on demand for heating oil.

So we're seeing quite a strong refining margin driven by tight supply and just solid demand. Speaking of the demand side, as for the facilities that are in operational glitches, we do not know when they will start up because there has not been any clear-cut announcement. So it's difficult for us to have a grasp of all the little details. But it appears that the degree of operational glitch is rather sizable, and therefore, with cautiousness, we don't think the latest tight situation will ease in a short period of time.

We are expecting the market situation 2. And according to the data, the capacity expansion -- the capacity expansion will be 800 MB, whereas the demand will be 1 million, which means again, a very -- again, a tight market situation in 2026.

As to answer your second question, in Q3, although OPEC continued to unwind output, Dubai benchmark price rose, and this is attributable to solid oil demand, including stockpiling demand despite higher crude we also see the strong OSP lately driven by healthy demand.

We'll share the OSP announcement for December listing soon and the market forecast, it will be lower than the previous [indiscernible] as of OPEC+ is continuing [indiscernible]. So given the situation, OSP is likely to show a downward trend, but how much it will be dependent on how much sanctions in Russia affect demand for Middle East crude oil and OPEC.

The following question is by Jeon Yu-Jin of iM Securities.

[Interpreted] I am Jeon Yu-Jin from Securities. I have 2 questions. The EU is going to enforce the 18th sanctions package against Russia with regard to this. So following this, it looks like EU will not be importing Russian crude oil. Do you think this will have a positive impact on S-OIL, including -- or do you think you will gain out of this like higher exports to Europe?

Second question is the government requested the petrochemical companies to come up with the petrochemical destruction plan before the end of the year. Have you discussed this? And is there anything up for review on your side? And third is, when do you expect to reflect the performance of Shanee project? Will it be in 2026?

[Interpreted] So to answer your first question, as you said, the EU announced the 18th sanctions package, which will expand import of fuel products refined with Russian crude oil. And it lately announced the 19th sanctions package banning transactions with Russia's energy majors and also imposing further sanctions on additional 100 vessels of Russia's [indiscernible].

As for its impact on the company's business, we do not directly export fuel products to Europe. However, because we are seeing less product supply from Russia to EU, the prices of fuel in Europe, especially kerosene and diesel went up, and this prompted the refiners in India and the Middle East to push more volume out to the European continent. And this in turn improved the overall market fundamentals in Asia and widened the spread of fuel products. And for your information, Europe has seen the highest import of jet fuel and diesel in the last 2 years and the changing dynamics of the trade flow has been working in favor of the spread of major fuel products in the region.

On top of EU's sanctions package, the United States also announced an additional sanctions against Russia's major energy company who mostly export to India and China. This means that once the sanctions are applied, the countries who have been sourcing crude oil from Russia will have -- will see some negative impact on operation of their facilities. So this, in turn, will have a positive impact on the overall market fundamentals of fuel products in the region. And this will also advance the cost advantage of the refiners that have not been sourcing crude oil from Russia.

So to answer your second question on the government's restructuring plan of the petrochemical industry, the company is closely working with the government and related industries to ensure that the voluntary agreement and industrial restructuring for a new petrochemical renaissance makes the domestic petrochemical industry more competitive and bring about a turning point for a new Renaissance in the petrochemical industry.

So the government is driving the restructuring of the industry mainly for 2 reasons. First is to cut down on the old and obsolete facilities that are low in proficiency and advance the industrial structure around the high-efficiency facilities and thereby, advance the overall competitiveness of Korea's petrochemical industry.

As you know, the company is executing Shaheen Project, and this is a project that is aligned with the government's policy direction. It comes with distinct process technology and high cost competitiveness by creating cost competitive feedstock. And it's also very outstanding in terms of reducing carbon emissions by maximizing the energy efficiency. The mechanical target completion is June 2026, and it is going well.

So we are executing the project to prepare ourselves for a global energy transition and take S-OIL's vertical integration between refining and petrochemical to a higher level and bring about a renaissance in Korea's petrochemical industry. We are also -- we also think this project is vitalizing the local economy and creating jobs.

Ulsan, where we are executing the project, the petrochemical intermediates such as ethylene and butadiene are in short. But once the new facilities have been run from the project, the domestic production will substitute this import volume, thereby advancing the overall competitiveness of petrochemical complex -- Ulsan petrochemical industrial complex. So this concludes my answer on the second question, and let me move to the third question.

So with regard to your third question, again, our mechanical target completion is June 2026, and we're planning test run in the second half of 2026 and commercial operation in the early part of 2027. So we're expecting the new facilities from the project to somewhere in the first quarter of 2027. That concludes my answer.

The following question is by of Lee Yong-Wook of Hanwha Investment Securities.

[Interpreted] This is Lee Young-Wook from Hanwha Securities. I have 3 questions. First is regarding the refining market. Well, you said the market fundamentals are tight, but there are some capacity expansions in Asia. But if you just consider those shutdowns and the capacity expansions overall. What is your take on the long term? Second is about Shaheen Project. You said that Shaheen, the new facility will contribute to the company's performance starting from 2027. How much do you think Shaheen Project will contribute to the company's overall profitability? And number 3 is what is your CapEx from this year until 2027?

[Interpreted] So to answer your first question, the institutions are varied in terms of their outlook on the global refining capacity expansion and shutdown. But according to the outlook by the institution that we take as a reference, this year, it will be 370 MBB net decrease, next year 800 MBB net increase, and 2027, 620 MBB net increase. From 2028 to 2030, it will be an annual average of 200 MBB. And then after that, the net expansion will slowly taper down. But the actual net increase in 2026 and 2027 is likely to be less than the forecast because many times, the capacity expansion fall behind their schedule, and we've been hearing some announcements of old facilities shutting down.

Going forward, we're expecting to see the global refining market balance to be in a healthy mode structurally because from 2025 to 2030, the total ethylene expansion is roughly 1.7 MBB while demand will grow by roughly 3.1 MBB during the same period. That's all I have.

[Interpreted] So to answer your second question about the profitability of Shaheen project, we know the ethylene spread is squeezed at the moment. We're expecting the ethylene spread to improve in 2028 when the [indiscernible] expansion in Asia led by China peak. But we also -- the period could also be brought forward depending on how the restructuring in Korea's petrochemical industry plays out.

But however, Shaheen Project will be very good in cost competitiveness in 3 aspects. First is the feedstock and second is energy efficiency and third is operational efficiency. And according to the outlook by some of the outside institutions, the Shaheen Project IRR is expected to record a 2-digit number.

So as for the CapEx in 2026 and 2027, while nothing has been finalized yet, so it's a little premature to share it with you, but we're estimating the 2026 CapEx to be roughly KRW 2 trillion, which includes KRW 1.5 trillion for Shaheen Project. And for 2027, we do not have any firm project for 2027. So if there is a CapEx, it will mostly be for maintenance, regular maintenance. That's all I have.

The next question will be given by [indiscernible] Securities.

[Interpreted] So I have 2 questions. First is about the global refining facilities operation rate. You said that the overall market balance is quite tight. So what is the operation rate globally for this year? What is your outlook on next year? And what is your take on the global refining industry outlook?

And second is about the emerging cooling fluid oil market. Could you walk me through the market outlook?

[Interpreted] Well, in the third quarter, the global refining facilities operation rate was 82%, which was not -- which did not differ much from the previous quarter. In Asia, the average operational rate was 84%, which was the same as the previous quarter. In India, it dropped from 113% to 109%, whereas in China, it slightly uptick from 73% to 80%. In the U.S., because of the seasonal high season in Q3, it was 95%. And in the U.S. West Coast, there was a fire in the [indiscernible] refinery. And as a result, the average operation rate in the U.S. dropped to 76% and the U.S. overall was 87%, which is lower than the previous quarter. And in Q4, it is going to be rather volatile depending on the situation of Russia's crude oil sanctions.

So to walk you through the global refining facility capacity expansion in 2026, we're going to see a net increase of around 800 MBB next year, whereas demand will be roughly 1 million MBB. So we are expecting to see a stable and steady market fundament.

[Interpreted] With regard to your question on the cooling fluid, late October of 2024, we launched SL e-cooling solution, which is emerging cooling fluid [indiscernible]. And this year, we signed MOU with [indiscernible] company and [indiscernible] battery pack manufacturer and we commercialized [indiscernible] and our main customers are government offices and [indiscernible] companies.

We recently passed all the performance and reliability [indiscernible]. [indiscernible] and we are also in the process of running certification [indiscernible]. And upon certification, we will apply to those [indiscernible] and thereby [indiscernible].

We are also accelerating our movement [indiscernible] emerging cooling fluid business. [indiscernible] who are engaged [indiscernible] and battery business and this is our market preferences early on and also [indiscernible] potential customers. This concludes my answer.

Allow me to once again share my gratitude to all the investors and analysts for showing your keen attention and support for S-OIL. As always, we will do our best to communicate with the market in all transparency and fairness. And if you have any further questions about the company's third quarter performance, please feel free to contact the company's audit team. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]