Good morning. We will begin SK Innovation's Earnings Conference Call. Good morning. I am Chung So-Young , PL of IR Comm at SK Innovation. Thank you for joining the company's second quarter 2024 earnings presentation. I have with me SK Innovation CFO, Kim Jin-Won , and Lee Woo-Hyun , Head of IR and the management team from the subsidiary companies. We will first have CFO Kim Jin-Won to run through the company-wide business results for the quarter, followed by business highlights, each presented by respective members of the management team. We will also talk about the recently announced merger plan between SK Innovation and SK E&S, expected outcomes and synergies, after which we will entertain your questions. Please note that the earnings we're presenting today have yet to receive an audit and thus are subject to change upon the independent auditor's review.
With that, I will invite CFO Kim Jin-Won to run through the second quarter earnings.
Yes. Good morning. I'm Kim Jin-Won , CFO of SK Innovation. Allow me to start by thanking the shareholders, investors, and analysts for your continued interest in the company. With that, I will begin with the highlights of the second quarter 2024 business performance. In Q2 2024, despite sales volume growth from refinery products and solid mining production from the E&P business, on the back of ASP and sales volume declines from the Battery business, revenue fell KRW 56 billion QoQ, reporting 18,799.1 billion KRW. Now, despite robust E&P mining production on weaker refining margin and fixed cost pressures from lower run rate from the Battery business, operating profit was down KRW 670.5 billion, resulting in a loss of KRW 45.8 billion.
On the non-operating side, due to limited increase in the FX rate and smaller derivative losses following oil price decline, there was QoQ improvement of KRW 124.8 billion, with non-operating loss reporting KRW 481.8 billion. In terms of the breakdown, there were FX translation loss of KRW 95.3 billion, derivative loss of KRW 20.8 billion, net interest expense of KRW 261.9 billion, equity method loss of KRW 32.5 billion, and other expense of KRW 71.3 billion. Next is the balance sheet. Total asset at its second quarter end 2024 was KRW 86,390.1 billion. Tangible asset increased approximately KRW 6 trillion YTD on new battery plant constructions overseas, while on battery ASP decline, inventory asset and receivables were down KRW 0.7 trillion and KRW 0.6 trillion respectively. Liabilities stood at KRW 53,288.4 billion, with a decrease in trade payables of approximately KRW 1.1 trillion following lower run rate from scheduled CLX turnaround.
Borrowings was up KRW 3.6 trillion on CapEx expansion. Debt- to- equity ratio was down 8 percentage points year- to- date, coming in at 161%. Next, I will be inviting the executives from each of the companies to present on their respective business performance and outlook. We will begin with the Refinery business, and I invite from SK Energy, Seong-Won Cha, Head of Corporate Planning.
Yes. Good morning. I'm Seong-Won Cha, Head of Corporate Planning Office at SK Energy, and I will run through our Refinery business. In Q2, macro headwinds, including concerns over higher-for-longer and delayed China recovery, weighing down on refining margin, which drove companies' operating profit down KRW 446.9 billion QoQ to report KRW 144.2 billion. To provide a bit more color, crude prices went up to $90 per barrel on the back of deepening geopolitical risk of a potential armed clash between Israel and Iran early April.
But as bilateral tensions started to ease and with the pullback of the Fed's rate cut expectations, crude shifted its trajectory and trended downwards. Also, early June, OPEC+ announced that it would gradually ease its stance on voluntary production cuts, which pushed crude down to $78, all-time low for the year as softer crude price trends continued. In terms of the Refinery market, increase in production in Q1 in anticipation of China's economic recovery ended up as export volume as recovery was delayed, driving regional inventory levels higher and creating a weaker market backdrop. Also, with new capacity additions coming online from Oman, Kuwait, and the Middle East, export volume increased, weighing down on the weakness in the market.
All in all, on lower crude price and weaker product market backdrop, second quarter refining margin fell, driving the company's refining business operating profit down on a QoQ basis. Next, moving on to second half market outlook. On top of Fed rate cut expectations and production cut from OPEC+ and its adherence to such stance, drove increase in seasonal demand, which we expect will support the bottom range of the crude oil prices. Demand for refining products is expected to be supported by upcoming high season in the third quarter for cooling and mobility demand and industry demand rebound from China and Europe. On the supply side, impact of run cuts by regional refineries in the second quarter will start to feed in from the third quarter, on top of which supply troubles are expected due to hurricanes and extreme heat waves.
All in all, we expect lower-band crude price will hold up, supported by tighter supply and demand dynamics, which we expect will drive recovery of refining margin as we move into the third quarter. At the company, we are controlling utilization with ample flexibility in line with the outlook on the refining margin and the supply demand, and nimbly responding to fast-changing market conditions.
Thank you. I will now invite Kim Yoon-Jae, Head of Management and Planning Office of SK Geo Centric, to present on the Q2 Petrochem results.
Yes. Hello. I am Kim Yoon-Jae, Head of Management Planning Office from SK Geo Centric. Now, despite marginal increases in spreads seen in PX, benzene, and other key products, sales volume decreased due to scheduled maintenance of #2 PX in Q2, bringing operating profit for the Petrochem business down by KRW 25.1 billion QoQ, reporting KRW 99.4 billion won.
In terms of the market outlook for each of the product categories, I will start off with paraxylene PX, which is our core aromatics product. We were expecting to benefit from higher demand for aromatics for gasoline blending in time for the upcoming driving season, but gasoline demand fell short of our expectations, thus limiting the levers behind driving higher margin for aromatics. Although the positives from supply-demand dynamics are constrained, we project PX spread to maintain a steady state with the coming of the peak season and rising polyester demand for winter clothing. For benzene, tightness in supply caused by solid U.S. demand and regional supply troubles and turnaround in the first half will start to ease as we head into the second half of the year. But even so, second half spread is still expected to be higher than last year's per annum average.
For olefins, there has been a build-up of new capacity in the region, absent any significant demand growth, but we are looking forward to improvements backed by Chinese government's pump- priming measures in the second half of the year.
Thank you for that. Next is on the Lubricant business performance, and I invite Heo Joong-Wook , Head of Corporate Planning and Management Office of SK Enmove.
Good morning. As introduced, I'm Heo Joong-Wook , Head of Corporate Planning and Management at SK Enmove, and I will walk through our Lubricant business performance. On the back of temporary bearish demand following weak demand from China and fall in oil prices and indicators, operating profit for the Lubricant business was down KRW 68 billion QoQ, reporting KRW 152.4 billion.
Despite the fact that the base oil was a buyer's market in the first half, we reported good earnings and expect to maintain solid bottom line as we continue to bolster our competitive edge in the second half of the year. In the second half, macroeconomic recovery on the back of interest rate cut is expected to drive an uptrend in demand for base oil and lubricant oil. Global logistics continue to face difficulties due to geopolitical risks, and we believe competitive advantage we have on our global supply chain will lead to volume growth in the second half. Thank you.
Thank you for that. Next, from SK Earthon, Chi Yong-Min , Head of Planning and Support, will run through Q2 ENP business performance.
Yes. I will talk about the E&P business. This is Yong-Min Chi, the Head of Planning and Support Office at SK Earthon. The second quarter E&P sales volume increased slightly QoQ. However, if we look at the decline in the complex selling prices and an increase in COGS, as a result of that, overall operating income versus the first quarter decreased by KRW 12.3 billion to KRW 142.1 billion. In addition, due to the sale of the 20% stake the company had in PERU LNG, disposal gains from equity method sales was around KRW 95.5 billion, and non-operating income, including these disposal gains, was up by KRW 73 billion versus the previous quarter. Using the proceeds from the sale that we have had, the company plans to focus on securing sustainable growth momentum for the future and on strengthening our fundamental competitiveness.
The company is planning to participate in bids to acquire new high-potential blocks in Southeast Asia and to strengthen the value of existing assets in Malaysia and also Vietnam. Thank you very much.
Yes. Thank you. Next, I would like to invite SK On CFO, Kim Kyung-Hoon, to present the second quarter Battery business performance.
Yes. Good morning. This is the CFO of SK On, Kim Kyung-Hoon, and let me walk you through the second performance of our Battery business. Due to the fall in ASP driven by the decline in metal prices, our overall sales declined KRW 130.1 billion quarter-over-quarter to KRW 1,553.5 billion.
On the operating profit side, sales volume in the U.S. recovered somewhat, resulting in a rise in the AMPC, but tight inventory management and product production optimization led to lower utilization of our capacity and thus increased the fixed cost per unit. In addition, in the second half, in the second quarter, rather, the Hungary number two factory started operations, causing an increase in initial cost due to the new production, which altogether created an operating loss of KRW 460.1 billion. To discuss our outlook for the second half of the year, the downstream market recovery is taking longer than initially expected. However, we do expect customer battery inventory restocking demand, coupled with an expansion in the new vehicle lineup, lower interest rates, and lower metal prices will create an uplift in the EV market battery demand versus the first half.
As a result, if we look at the second half, the company is planning to focus on improving its fundamental competitiveness, such as engaging in company-wide cost-saving efforts to improve profitability. So, for example, we will make efforts to improve the efficiency of our existing operations, such as strengthening our production and purchasing competitiveness. And at the same time, we will double-check to ensure that there are unnecessary cost items and engage in other operational improvement activities. Even though the business environment in Korea and abroad is challenging, we will continue our efforts to cut costs, and as market demand recovers, we will exert our best efforts to achieve break-even in terms of operating profit in the second half. Next, let me also talk about our customer and product portfolio.
So, if we look at the EV market right now, a lot of the OEMs right now are engaging in hybrid sales, and as a result of that, BEVs are becoming more popular. And as a result of that, if we look at the current situation in China right now, the overall hybrid cars, and as China, the top three players, is providing stable sales. And as a result of that, we are trying to be flexible in dealing with increasing demand. At the same time, based upon our NCM pouch technologies, we are trying to accelerate our expansion in form factors and chemistries. And also, in terms of the cost and safety side, we are trying to strengthen our battery competitiveness. In particular, for each of the different form factors, we have developed products, and right now, we are engaged with multiple parties about mass production opportunities.
At the same time, with regards to electrification opportunities, we do think that there will continue to be various cooperation opportunities to strengthen our market presence in various regions. And at the same time, with new global OEMs, we are going to continue to engage in partnerships to diversify our customer and base at the end of the day. Based upon this, in July, we also made the decision to merge with SK Trading International and SK Enmove. Sorry, Enterm. So, when this merger is completed, we do believe that this will create a base to secure better profitability and have a stable cash flow. And at the same time, we do believe that this will create more synergies in terms of savings, in terms of our purchasing costs, and also strengthen our fundamental sourcing capabilities.
So, based upon that, we do believe that we are going to use this challenging situation as an opportunity to try to fundamentally strengthen our competitiveness and also ensure that our mid- to long-term overall competitiveness is strengthened further. Thank you.
Yes. Thank you. Now, let me talk about the performance of SK IE Technology in the second quarter. With regards to SK IE Technology, the sales volume of key customers increased. However, inventory-related losses led to larger operating losses. In the second half, the company is expecting to increase sales volume as shipments to new customers will start. So, with that, we will wrap up our presentation on the second quarter performance. And now, the CFO, Kim Jin-Won , will discuss the expected benefits of the planned merger.
Yes. Now, with this, maybe I can go over the expected benefits and synergy from the merger between SK Innovation and SK E&S that was announced recently. SK Innovation is involved in the refinery and petrochemical value chain and has a Battery business, while SK E&S is the largest green energy company in Korea with a traditional LNG and power generation business and renewable energy and hydrogen operations. The two businesses are deeply related, and the core competencies of the two are complementary. Thus, by combining the assets and capabilities of the two companies, we expect that we will be able to further solidify our competitiveness and profitability. First, by combining the value chain and infrastructure of the Refinery and LNG business, we believe our EBITDA will improve by around KRW 0.5 trillion.
In addition, by integrating the competencies in the electrification area to provide customers Energy Solution Packages to our customers, we believe we will be able to enjoy additional upside of around KRW 1.7 trillion. Thus, by 2030, we are planning to generate an additional EBITDA of KRW 2.2 trillion. So, let me discuss the details of the KRW 0.5 trillion improvement in the Refinery and LNG business. First, in the upstream area, the two companies will be able to combine their common infrastructure and to strengthen competitiveness and save operating costs. And by this, we expect this to lead to an improvement of around KRW 0.1 trillion in terms of EBITDA. In addition, on the downstream side, SK Innovation's captive LNG demand and SK E&S's sourcing capabilities can be combined to expand this business. And we believe this can achieve an additional KRW 0.4 trillion EBITDA enhancement in terms of profitability.
In the electrification area, after the merger, by combining the electrification-related capabilities of the two companies, we expect to gain a competitive advantage in this market. For example, by combining SK E&S's energy solution and distributed power generation technology with SK Innovation's immersion cooling and battery production capabilities, we can become a player that provides energy solutions for areas that have an increasing demand for electricity, such as data centers. Thus, by combining a wide variety of products and services and creating growth, we expect to enjoy an additional KRW 1.7 trillion of EBITDA. If these synergies that I discussed can be realized as of 2030, we believe we can generate over KRW 2 trillion in additional EBITDA on a per-year basis.
In addition, as the Battery business grows and by improving the profitability of our existing businesses, such as LNG and Energy, the company aims to increase the full company EBITDA to approximately KRW 20 trillion per year. By transforming into a total energy and solutions company, we continue to strive to strengthen the firm value and increase our shareholder value. That was a brief overview of the merger, benefits, and expected synergies. Upon announcing the merger decision, we have listened to the feedback provided by many shareholders and investors. During this process, we have received many forms of different feedback. For example, some have agreed with the expected benefits and synergies of the mergers, and others have expressed an understanding that the merger is the best solution to overcome the current issues.
Of course, others have also voiced concerns about the current issues that we face today. In particular, we fully understand that some stakeholders agree that the EV market will continue to grow, but are concerned that the company, because of the pace, which is slower than expected. We would like to take the opportunity presented by the merger of SK Innovation with SK E&S and SK On with SK Trading International and SK Enterm to solve the issues that we are currently facing. In addition, it will strengthen SK Innovation's weakened financial position and add a stable source of cash flow, which will strengthen the company's capabilities to prepare for the future full bloom of the EV market.
In addition to strengthen the company's financial position via the merger, we will also focus on securing the technological expertise required to satisfy customer needs and strengthen our cost competitiveness to improve our profitability. The company will successfully complete the completed merger, which is something that we do believe is essential to solve the current issues that we have and improve shareholder value. Moreover, we will exert our best efforts to maximize the expected merger benefits as discussed, and we will continue to communicate and engage with you about this process. So, we look forward to your interest and support.
Yes. This ends our presentation that we have prepared for today, and now we will start the Q&A session. Before we take live questions, first, we would like to address a few questions we have received in advance through our website.
Prior to this earnings conference call, we received questions from investors and analysts on a wide variety of topics. To effectively communicate, we have selected a few of the most frequent questions and will answer it with simultaneous interpretation. For this quarter, because there was an important disclosure, we will take and adjust the questions about the merger. The first question that we will address will be about calculating the merger ratio, why SK Innovation is using the book value, not market value, and what type of considerations were behind this decision. About this, CFO Kim Jin-Won will address. Thank you.
Yes. In the process of discussing the merger method and regarding how we will calculate the valuation and decide on the merger ratio, basically, when it comes to listed companies, one shall apply the market value, but if a book value can actually apply as an exception if the market value falls short of the book value. The reason why market value is used is because use of the market value is wide when there is a transaction between the third- party and similar transactions, and also people can buy those relevant shares in the market. We went through a lot of discussions at the management as well as the BoD, and also we were in full consideration of the positions and stance of our relative counterparties.
If we look at the relative value of E&S, we believe that the selection of the market value is the best solution for us. However, the company is fully aware of the issue that currently the market value is significantly lower than the book value, and we believe that some of the shareholders have expressed their dissatisfaction at the application of the market value due to this very fact. And we have made disclosures on relevant information, and we will do our best to make sure that we can narrow the gap that currently exists between the market value and the book value so that eventually we can maximize the shareholder value going forward. Thank you.
Yes. Thank you. Now, we will go on to the second question, which is about the progress made on discussions related to SK E&S's RCPS. So, again, I would like to ask the CFO, Kim Jin-Won , to answer this question.
Yes. Last time, I do believe that the CEO did have a press conference, and this was a question that was asked then. And up until now, if we look at the discussions with KPI, it hasn't been wrapped up yet. However, yesterday, SK E&S BoD did approve the establishment of a NewCo to manage the seven city gas subsidiaries, which are the underlying assets of the IPS. So, in addition to that, the BoD also approved that if there was a redemption in cash, that the guaranteed IRR would be not 7.5%, but 9.9%, and this was discussed. So, if we look at both decisions, they were made to maintain the initial spirit behind the initial issuance of the RCPS and are not related to the plan to structure a solution.
So, the decision was not made with the consideration that the RCPS would be redeemed in cash with a guaranteed IRR of 9.9% in the process of the merger. In addition, if the final maturity at the RCPS, as long as no cash redemption is decided, the higher guaranteed IRR would not impact the shareholder value of SK E&S or SK Innovation. At the end of the day, the ultimate decision on a cash or in-kind redemption is in the hands of the company. So, as a result, if the company reaches a final conclusion, we will make sure to share this information with you. So, once again, I would like to emphasize that in relation to this merger and the treatment of the RCPS, the basic principle is to make sure that the solution does not impact the merger in itself.
We are working on it right now, and we will come to a conclusion soon.
Thank you for the answer. We will move on to the third question. We would like to understand what impact the merger will have on the credit ratings and what the company's measures are to counter any potential impact. I would like to ask the CFO to provide us with an answer.
Now, with the growing investment into our Battery business, it is true that our financial burden for the company has been growing over the years, and improving that financial structure is actually one of the purposes which we want to achieve through this merger.
Through the merger, what we can do is we can expand our business size and the portfolio, and we could make sure that the steady cash flow of E&S actually brings us less of a volatility in terms of the cash flow and earnings. We think that this would have a positive impact on credit ratings of SK Innovation. Global credit rating companies like S&P also consider the parent support as well as these elements, and basically, they've also supported that this move is quite positive. They've made some positive assessment, which is reflected on the change of their ratings outlook. Previously, the ratings have been downgraded in BB+ stable, but they have adjusted upward to BB credit watch positive.
What credit watch positive implies is that S&P is going to reassess the credit ratings of the company within the 90-day period, which shows that there is a possibility of a ratings upgrade going forward. Now, having said that, the credit rating agencies will look closely into some of the key drivers behind making our financial position more stable based upon the improvement of the operational performance, IPOs, for instance, the battery business. At this point, SK On is committed on improving its fundamental and intrinsic competitiveness and improving its corporate value. We will do our best to make sure that we manage our creditworthiness.
Thank you very much. That brings us to the end of the Q&A session, which we've received previously. We will now convert to consecutive translation.
[Foreign language]
Now, Q&A session will begin. Please press star one, that is star and one if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone.
[Foreign Language]
The first question will be presented by Jin-Myung Lee from Shinhan Investment & Securities. Please go ahead with your question.
[Foreign Language]
Yes. Thank you for the opportunity to ask questions. This is Jin-Myung Lee, and there are two questions that I would like to ask you. The first question is related to SK Enmove in the second half of the year with regards to the immersion cooling operations or businesses that you are planning going forward. I do understand that there may be some projects that you will see results for. So, if you could provide an update on that, that would be appreciated. And the second question that I would like to ask you is about your Battery business.
Could you talk about the overall utilization that you have, excuse me, for each of the different regions? And taking into consideration the downstream demand that you see, how will you be adjusting that utilization going forward? In addition to that, for the new factories that are going online, how will that be utilized?
[Foreign language]
So, this is Heo Joong-Wook from SK Enmove, and maybe I can address the first question that you have about the update of our immersion cooling projects and technology.
So, as you may be aware right now, we have selected thermal management as one of our new business areas. Following on the efforts that we made in the first quarter, we continue to work for the commercialization of our immersion cooling technology. Globally speaking, for this technology, if you look at the applications, we do think that the markets will ripen at different speeds. As of now, for the short term, we're focusing on data center applications, whereas on the mid- to longer term, we're looking at applications in the area of EV batteries and also ESS systems.
[Foreign language]
In addition, in light of the market maturing before that actually takes place, we are pre-emptively trying to secure partnerships within the value chains of each of the different application areas and also understand the characteristics that each application would know so that we can come up with a differentiated component technology to develop for that purpose and also focus on the fluid products that we have in terms of the verification and certification that is required in those areas.
[Foreign language]
So, in more detail, in the case of data center applications right now, based upon our YUBASE high-quality base oil, we are looking to develop a product that has a high flash point. In addition to that, we are cooperating with local and also international system producers to engage upon proof of concept studies and also secure references so that we can supply package solutions in connection with server certifications.
[Foreign language]
In addition, in the case of our EV batteries, together with SK On, we are cooperating and developing various technologies that would enable and prevent thermal runaway and also various fire situations, and also to come up with various module designs that would help in this area. So, we are trying to generate synergies in different areas. And in the case of ESS, we are trying to identify non-flammable and non-conductive components. And also, with the various producers and also ESS players within the market, we are trying to develop new demand for this immersion cooling technology.
[Foreign language]
Not only this, but also to enhance the general public's understanding about immersion cooling technology and also the Lubricants business for EVs that we have at SK Enmove, we are trying to enhance the overall understanding and awareness about our traditional base oil and Lubricants business. So, for that purpose, from July 17th, we have been engaging in a brand advertisement campaign.
[Foreign language]
So, in terms of trying to reach an early commercialization of the immersion cooling technology and come up with tangible results, the efforts that we are currently exerting will continue into the third quarter and fourth quarter also. Thank you.
[Foreign language]
So, this is Gun Ahn, the controller of the corporate planning office at SK On, and maybe I can address your second question about our utilization from region to region. So, if we look at the slowdown in the global EV market, as a result of that, our overall OEM demand has been a bit sluggish. So, as a result, the utilization in the first quarter and second quarter across our capacity has been at a lower level. However, from the second half of 2024, we do expect that there will be a gradual recovery.
[Foreign language]
So, as of the current time, at the different locations and by different sites, we are trying to engage in more efficient line management according to the situation in which each of the capacity is put in. So, in some cases, it would be running at a lower run rate. In some cases, it would mean trying to make changes to some of the older equipment that we hold. And we're trying to be flexible in terms of our production plans. At the same time, we are looking into strengthening our fundamental production capabilities.
So, for example, on the safety side, eliminating any risks that we may see, trying to improve our quality, and trying to upgrade our IT systems to ensure that we can strengthen our overall manufacturing competitiveness.
[Foreign language]
So, maybe briefly I can also go over the yield situation. From 2023, if you look at the yield across all of our different sites, it has shown a gradual upward trajectory. So, in particular, if you look at the first quarter and second quarter of 2024, across all of the different capacity that we have had, we have been able to achieve a yield that outperforms the initial plan that we had set.
[Foreign language]
So, as of the current time, we do believe that we are in a stable phase for the yields across all of our different factories. So, as a result, for the remaining of 2024 and into 2025, we do believe that we will be able to enjoy continuously a high yield level.
[Foreign language]
So, to talk about our new factories and how they are currently operating, if we look at our Hungary Iváncsa factory right now, for certain lines, the SOP process has started, and we are currently increasing the overall production that we see. And right now, to ensure that we're able to acquire the capabilities locally that are required and are needed, we are trying to hire the personnel in a very prompt manner and also make sure that they get the required skills, education, and also training at the nearby Komárom factory. So, right now, that is the training internally that we are doing right now. In addition, for the number two Yancheng factory that we have in China, right now, we're trying to flexibly see how the situation and dynamics change and then try to moderate the SOP schedule accordingly.
[Foreign language]
The following question will be presented by Woo-Jae Jeon from KB Securities. Please go ahead with your question.
[Foreign language]
Thank you for taking my question. I have two questions. I am Jeon Woo-Jae from KB Securities. My first question relates to your North American plant for SK On. Can you provide us with an update on your line conversion process and also any potential impacts that you are currently looking at with the expanded new vehicle lineup going forward? Also, do you have plans to win additional new OEM or new customers going forward? Second question relates to your refining business. Despite the fact that we are in a high season for refining products, we see that the naphtha margin has not been that favorable. On the other side, the Bunker C oil, as well as the middle distillates, are showing quite solid margin levels. We'd like to understand as to the reason behind that and what your outlook is for the second half of the year.
[Foreign language]
Hello. I am Jeon Hyun-wook from SK On. I am from the IR office. I will respond to your question.
[Foreign language]
So, with regards to the subsidies and incentives that we will be receiving and the importance of that in terms of the U.S. production, as that becomes very important for the OEMs, we are at this point going through the conversion of our production lines at SK Battery America, that is SKBA. Now, having said that, with respect to the specifics that relate to each of these plants, in light of the relationship that we have with our customers, I hope that you understand that we won't be able to disclose the specifics.
[Foreign language]
Although I cannot talk about the specific details, I can tell you that all of this is managed in line with our global plant line operations plan with a view toward minimizing the investment as much as possible and in securing profitability.
[Foreign language]
Now, regarding the second part of the question on the upcoming line or the new cars, if we look out into a year or two years, the upcoming new vehicle models will include the Transit Custom from Ford and EV9 from Hyundai Motor Group and some of the large-size IONIQ SUVs, all of the EVs that are produced in North America.
[Foreign language]
Yeah, we expect the portfolio of models to expand as we go forward because we are focusing on solidifying our existing partnership with our existing customers and also to onboard additional programs to our platform.
[Foreign language]
Aside from the existing customer base, we are also engaging in discussions with other OEMs so that we may win orders from these new customers. At this point, we are also talking about various different supply agreements and contracts with new OEMs.
[Foreign language]
So, once we get clearer color and more information that we could share with the market, we will definitely come back to you and communicate that to you.
[Foreign language]
Yes, I will next tackle your question regarding the fact that why, despite it being a high demand season for gasolines and refinery products, why we are seeing gasoline crack, which is displayed weakness, on the other side, solid, I guess, trend for the middle distillates. So, I will talk about that as well as your second half outlook.
[Foreign language]
Now, first taking a look at the gasoline, as we entered into driving season in the month of June, we saw the U.S. Refineries increase their monthly average run rate to around 94%, but the demand has underperformed our original expectations, about 150,000 barrels per day decline. And because of that, and because of the underperforming demand, we've seen high inventory levels built up, which actually led into a weak market backdrop.
[Foreign Language]
Now, having said that, if you look at the demand for the month of July, we have seen it outperform the level that we've seen the previous year, and it is rewriting the peak as we go through the year. Also, the U.S. inventory level has been falling, and it has been showing going down, going downwards. As such, we believe that in the second half of the year, we will start to see a rebound in the Gasoline Market.
[Foreign language]
Now, moving on to jet fuel and other middle distillates. First, if you look at the Jet Fuel Market, we believe that going forward, also as we enter into Q3, this is going to be a peak season in terms of transportation, and we are seeing improvements in overall jet fuel market with demand growing by about 6%. In the Singapore market, we've seen a decline in the level of inventory, which has supported the improvement in the market backdrop.
And also, for four months consecutively, we've seen the regional refineries expanding their run cut, which actually suppressed down on the supply levels, which ended up as a lower inventory level in Singapore, especially for middle distillate and the Bunker C fuels. So that explains the overall market backdrop. And so that is the reason why we see for the middle distillate, compared to the Gasoline Market, the market was more buoyed or supported versus the Gasoline Market.
[Foreign language]
The next question will be provided by Henny Jung from Daiwa Capital Markets. Please go ahead with your question.
[Foreign language]
Yes, thank you for the opportunity to ask questions. There are two questions that I would like to ask you. First, if you look at the first half of the year in the pure EV market, it does seem to be that globally the overall growth has been very low at around 10%. And it does seem to be that there are concerns that this low level of growth will continue going forward. So, as the outlook for the EV market in itself changes, how would the company, if at all, change its strategy going forward? That's the first question.
And the second question that I would like to ask you is also in line with the Battery business. It does seem to be that Ford is changing its strategy on the EV side. It's downsizing some of its overall plans going forward. In addition to that, there seems to be a focus on the low-end side and also the smaller cars. So, as that strategy changes, what changes does the company believe will happen at the company level? And if you could elaborate about that in more detail, that would be appreciated.
[Foreign language]
Yes, this is Jeon Hyun-Wook , the IR officer, the Head of IR at SK On, and maybe I can address your question.
[Foreign language]
So, if you look at the outlook right now, we do understand that right now there does seem to be more of adjustments on the downside that is taking place within the market, and that is something that we do recognize.
But at the same time, I do believe that an important fact is the fact that if you look at various surveys that are being provided by the outlook going forward, if you look at the long-term horizon, I still believe that there is an expected high level of growth. So, for example, by 2030, the overall demand is expected to maintain around 25 million units, and I think that that would represent a growth of around 20% on a CAGR basis. So, for the current chasm phase that we are on and the sluggishness that we see within the market, I do think that we see this as an opportunity for us to see lower prices for EV vehicles, also try to expand the charging infrastructure, and also use it as an opportunity to increase the overall popularity of EV vehicles as a whole.
So, by doing this, I do think that at the end of the day, over the longer term, that we would be able to receive more support for our business.
[Foreign language]
So, though we are in a currently, you know, chasm phase as of the current time, we do think that the mid- to long-term growth momentum is still valid within the EV market. So, we do want to use this challenging period of time to strengthen our fundamentals and, as a result of that, also use it as an opportunity to strengthen the overall competitiveness that we have. So, using the challenge as an opportunity would be our stance.
[Foreign language]
So, over the mid to long term, I think that if you look at our strategy, our strategy would represent three different pillars. The first pillar would be strengthening our operational improvements. So, right now, under this challenging chasm phase, we do and are engaging upon efforts to try to maximize the overall profitability that we would be able to enjoy.
So, as a result of that, what that means is that within our cost structure for each and every item that we have, we are looking at it from scratch. So, we're going back to the basics. In addition to that, we're trying to strengthen our production competitiveness by improving our yield and also strengthen our purchasing competitiveness in the area of raw materials and various material so that at the end of the day, all in all, we can improve our operational efficiency. So, we're looking back at each of the cost items to see if there are any unnecessary costs. This is a detailed review that we will engage upon to ensure that we can improve all of the items in various detail.
[Foreign language]
The second pillar would be to diversify our product portfolio. So, in the case of products right now, in addition to the already existent NCM pouch area in which we have a high level of technical expertise, we continue to accelerate our efforts to expand the form factors and chemistries that we are engaging upon.
[Foreign language]
So, as a result of that, as we have mentioned before, in the prismatic battery area, we have completed the development of a product. Therefore, right now, we're focusing not on the quality and safety only, but also in terms of securing the price competitiveness for the product in itself. We want to ensure that our overall product portfolio addresses all parts of the market, including the mass market or the high volume market. So, therefore, we want to be able to have the capabilities to timely be able to satisfy any needs that our customers may have. And as a result of that, we are engaging upon various discussions with customers accordingly.
[Foreign language]
In addition to that, to overcome this challenging chasm phase and also this transitional phase in which there is an increase in hybrid vehicle demand, we are trying to deal with this situation flexibly. So, outside of China, on the global market, if we as one of the top three players providing batteries to these types of vehicles, we do want to ensure that we continue to supply in a stable manner.
[Foreign language]
And thirdly, for a third pillar, we want to expand our overall customer portfolio. As the overall electrification process does accelerate, of course, we are looking at various opportunities to collaborate with our key customers. This is a very active engagement that we have, and we want to strengthen our market presence in the different areas and continue to diversify our customer pool. As has been reported in the news recently, we did engage in a strategic partnership with a global mobility company. Right now, we're looking at various business opportunities. In addition to this discussion for each of the different regions for the key players that exist within that market, we are looking deeply and also consistently into opportunities to be able to have strategic collaborations.
[Foreign language]
So, in short, I think that what we want to say is that using this opportunity in which downstream demand is a bit slow, we want to utilize these opportunities as much as possible and in a very smart manner so that we can strengthen our operational efficiencies, also achieve a fundamental change and strengthen our fundamentals, and also over the mid to long term be able to maintain and strengthen the growth momentum that we have as a company.
[Foreign language]
So, maybe to move on to the second question that you asked about Ford, of course, as you have mentioned, we are well aware of the situation in which Ford is trying to, you know, pace itself a bit more in the EV side by, one, you know, strengthening its hybrid lineup.
[Foreign language]
So, specifically, if we look at the models in which we are currently focusing, of course, we have an upper hand in the area of long-range performance vehicles and specifically for the F-150. This is a vehicle in which, you know, is very iconic. It has a proven track record. In addition, in a situation in which the vehicles that are eligible for IRA tax benefits is decreasing, it's still one of the key pickup trucks that would be eligible for benefits of around $7,500 per unit. So, as a result of that, we are strengthening our sales strategy, focusing on highlighting these incentives, and as a result of that, we do believe that we will be able to continue sales growth on a YoY basis.
[Foreign language]
So, in addition to the F-150, if we look at other vehicles that we are supplying to, there's also the Transit, which is more used for corporate fleet purposes. For the corporate fleet market, the actual characteristics would be different from the individual consumer or maybe retail market. So, as a result, we do see more stable demand.
[Foreign language]
So, in short, I think what I can say is that, of course, we continue to closely monitor any changes that are taking place within the demand at Ford.
We continue to have very close discussions with our customer, and therefore we are continuously trying to put on efforts to ensure that we can flexibly deal and change our plans accordingly to any changes that take place within the market. And this also would apply. This overall stance, of course, also implies with the capacity expansions that we have for the 4G.