Good morning. I am Jung So-young, IR project leader at SK Innovation. Thank you for taking the time to join us today on this 2023 Q3 earnings call. On today's call, we have SK Innovation CFO, Kim Yang-sup, Head of IR, Lee Woo-yeon, and C-level officers from different subsidiaries. The agenda for today's call is as follows: CFO, Kim Yang-sup, will present the Q3 business results, which will be followed by Q&As. Also, please note that today's presentation has yet to be reviewed by our external auditor, so the results are subject to change based on such review. With that, let me invite CFO, Kim Yang-sup, to make the presentation.
Good morning. I am Kim Yang-sup, CFO of SK Innovation. I would like to thank our shareholders, investors, and analysts for your continued interest in the company.
Let me start with the highlights of the 2023 Q3 business performance. In the third quarter, thanks to profit growth in all businesses, including increased profits in existing businesses such as refining, petrochemical, and lubricant, improved productivity in the battery business, and reflection of AMPC, a turnaround was achieved with operating profit at KRW 1,563.1 billion, an increase of KRW 1,669.9 billion QOQ. Also, profitability improved by 8.4 percentage points QOQ, with OP margin at 7.9%. Secondly, in September, SK Earthon succeeded in producing crude oil from Block 17/03 in China. This offshore mine in the South China Sea, that we have been participating in from 2015, is a large-scale mine with a daily production of approximately 29,500 barrels, based on the peak oil production.
This crude oil production is significant, as it is the first ever case of SK Earthon successfully leading the entire process, from initial exploration to current production, based on the company's own technological capabilities after securing independent operating rights. In addition, we expect successful development and production of mines being explored in Vietnam and Malaysia. Next, despite the negative lagging effect caused by falling metal prices, SK On continued to improve its profitability by improving yields at new overseas plants and starting full-fledged production in its U.S. plants. Q3 OP margin, which includes the AMPC benefits of KRW 209.9 billion, was -2.7%, an improvement of 0.8 percentage points compared to the previous quarter. In addition, production and sales in North America will continue to increase in Q4, and we aim to turn our AMPC combined operating profit into surplus.
That was SK Innovation's Q3 business performance highlights. Next, I will elaborate on the company's Q3 business results. In Q3 2023, despite a decline in metal prices and a slight decrease in sales outside of North America in the battery business, due to the impact of rising prices from strong oil prices, sales was KRW 19,889.1 billion, an increase of KRW 1,161.9 billion QOQ. Backed by the robust profit growth in all our businesses, operating profit was KRW 1,563.1 billion, an increase of KRW 1,669.9 billion QOQ. Due to the losses on derivatives from rising oil prices, non-operating loss was KRW 476.8 billion, a decrease of KRW 325.7 billion QOQ.
To elaborate, the current quarter's non-operating loss was comprised of FX-related losses, KRW 111.6 billion, product derivatives losses, KRW 127.9 billion, net interest expenses, KRW 204.7 billion, equity-related losses, KRW 3.9 billion, and other expenses, KRW 28.7 billion. Let me go over the balance sheet. As of the end of Q3 2023, total assets amounted to KRW 80,108.2 billion, up KRW 12,889.3 billion, compared to the previous year's end. This increase was mainly attributed to the growth in intangible and tangible assets resulting from investment in new overseas battery factories and an increase in working capital.
Liabilities increased by KRW 6,983.9 billion compared to the previous year's end, reaching KRW 50,960.5 billion, primarily due to higher borrowings to support expanded investment expenditure. Despite the increase in liabilities, debt-to-equity ratio stood at 175%, down 14 percentage points compared to the previous year-end, driven by robust profit generation and a paid-in capital increase. Furthermore, net debt increased by KRW 1,012.2 billion compared to the previous year-end, reaching KRW 15,527 billion, mainly due to investments in overseas battery plant expansions. Next, let me dive into Q3 performance of each business.
The refining business recorded an operating profit of KRW 1,112.5 billion, an increase of KRW 1,523.7 billion QOQ, thanks to improved market conditions, such as increase in oil prices and refining margins. In Q4, although there are concerns about the continuation of the Fed's high interest rate policy and demand contraction, while our inventory remains at a low level, we expect the market to remain strong due to increase in demand for winter stockpiling and a widening supply-demand imbalance from the recovery in Chinese demand. Next, let me move on to Q3 petrochemical business performance.
Despite the margin compression due to the narrowing of the product spread, the petrochemical business demonstrated an operating profit of KRW 237 billion, KRW 237 billion, up KRW 66.8 billion QOQ, thanks to the inventory-related profits from the rising naphtha prices. Next is Q4 market outlook for key products. For PE and PP, despite the spot spread narrowing from the rising naphtha prices, we expect spread to remain flat due to the influence of year-end demand, such as Black Friday and Christmas. For PX, despite the decline in demand for gasoline blending, the Chinese polyester chain continues to operate at high rates and spread reduction is expected to be limited. Next, I will brief on lubricants Q3 performance.
Despite the decrease in the base oil sales volume QOQ, the lubricant business realized an operating profit of KRW 261.7 billion, up KRW 1.8 billion QOQ, thanks to the inventory effect from the increases in raw material prices. For the fourth quarter, despite factors such as a decrease in seasonal demand and other factors causing spread decline, the decline is expected to be limited due to a decrease in UCO supply from strong diesel prices. Next is E&P business performance in Q3. The E&P business recorded an operating profit of KRW 79.4 billion, up KRW 11.2 billion QOQ, due to the effect of reducing variable costs from a decrease in production volume.
In addition, starting from the fourth quarter, we expect top line and profit growth from 2024, thanks to the full-scale crude oil production from Block 17-03 in China mentioned earlier. From a cash flow perspective, it is expected that the new mine will be able to contribute on a meaningful scale every year in the future. With the development and production of additional exploration mines, we are concentrating our company-wide capabilities, leveraging SK Earthon's long experience and technology. Next, let me move on to the battery business in Q3. Despite increased productivity and increased sales volume through improved yield at U.S. plants, the battery business's sales was KRW 3,172.7 billion, a decrease of KRW 523.4 billion QOQ, due to the impact of metal prices falling sharply in the first half of 2023.
Operating loss narrowed to KRW 45.4 billion QOQ, thanks to the increased battery sales volume from full-fledged productivity improvement, improvement in the U.S. plant and the effect of AMPC worth KRW 209.9 billion. Consequently, OP margin was improved. In the fourth quarter, while there may be some impact due to a short-term slowdown in EV demand growth and a decline in metal prices, we anticipate further improvement in profitability through sustained productivity improvements in new overseas plants and comprehensive cost-cutting efforts. In addition, we aim to turn our operating profit into surplus in Q4 as the benefits from U.S. AMPC also increases. Next, let's look at SK IE Technology's Q3 performance. SK IE Technology saw a growth of KRW 3.6 billion in operating profit QOQ, backed by the top line growth from the increase in sales volume to major customers.
Looking ahead to Q4, a gradual improvement in profit is expected as sales to key customer continue to increase. Next, let me provide an update on the company's ESG status. Recently, there have been growing demands from the government and regulatory bodies to respond to greenwashing risk in all business activities. We seek to actively respond to investors' demand for enhanced transparency in ESG-related disclosure and more detailed information. To respond to greenwashing that may arise in the process of promoting the company's products and services, as well as management activities, the company will systematically respond to greenwashing risk by implementing pre-deliberation procedures and regular inspection activities based on internal policies and guidelines.
Thank you, and this is the end of our presentation. We'll now start the Q&A session. Please note, the Q&A session will be conducted with consecutive interpretation.
Prior to today's earnings call, the company has collected questions via our website for around two weeks. Before we open up the floor, we would like to provide answers to two most frequently asked questions first.
The first question is related to the recent concerns that there is a slowdown in the EV market. What the company's outlook would be and what strategy it has is the question, and the question will be answered by SK On. [Foreign Language] This is Kim Kyung-hoon from SK On, and maybe I can take your first question. If we look at the overall outlook in terms of supply and demand on the global market, in the short term, we do believe that there may be a slight dip in the overall demand growth due to factors such as inflation and the high interest rate environment.
However, over the mid to long term, if you look at the energy policies that have been released by each country, in addition to that, the distance per tank and also, the various, environment-related incentives that are available, we do believe that the overall EV market demand will continue to be strong, mainly focused around demand driving, that is coming from the North American market. In the case of the Chinese market, we do expect that the overall growth trends will continue in terms of demand. However, on a relative basis, supply will be stronger, and as a result of that, until 2030, we do expect that there will continue to be an oversupply situation. In the case of the North American market, we do see signs that the overall growth rate is slightly weakening, recently.
However, still, if we look at it on a global basis, North America still represents one of the highest growth markets. Until 2030, we do expect that the overall supply will be shorter in terms of the growth versus overall demand growth. So as a result of that, we do think that will be a situation, and we will continue to monitor the changes that take place in the dynamics continuously. In addition to that, in addition with the market environment, of course, based upon the customer demand that we see, we do have different scenarios that we have created for each region, and also according to situations that may take place in our overall order creation process.
So as a result of that, we do think that we will be able to optimize the overall customer demand, especially coming from the OEMs. In addition, we will continue to deeply monitor the demand risk that is coming from macro and micro changes in the environment. And also we'll make sure that we take measures such as optimizing our line operations and also the overall inventory management process to ensure that we do have a very effective inventory management system in place, and also are able to minimize the impact of any changes in demand.
So the second question that we have received is with regards to the recent releases or event news that has come out about SK Earthon and the China 17/03 block that we have actually being developed. So in terms of the estimated reserves and also the financial impact from that, that is a question that we have received. In addition to that, if there is any progress that is being made on other exploration blocks, that is also something that has been requested. So this is a question that will be answered by SK Earthon. Yes, this is the Head of Planning and Management Office from SK Earthon, and maybe I can take this question.
In the case of the China Block 17/03, this is a very significant project for us because it has been based upon our own proprietary technology, and we have had the full independent operational rights to this in terms of the overall process, starting from the exploration project to discovering the oil, developing it, and also production. So it is the first project of such nature, which makes it significant. If we look at the overall reserves that we have from this site, based upon the petroleum initially in place or PIIP reserves, it would actually represent 120 million barrels. And in terms of the recoverable reserves, that would be approximately 50 million.
In addition to talk about the financial expectations or impact that we believe for 2024, based upon a SK net basis, we do think that, in terms of the top line, it will have around KRW 500 million of contribution, KRW 500 billion of contribution, and in terms of the operating profit, another KRW 250 billion.
[Foreign Laguage] ESG 관점에서는 원유 생산 단계에서 발생하는 이산화탄소를 저감하기 위해 설계 시점부터 발전기에서 나오는 배기가스의 폐열을 재활용하고, 설비의 전동화 등을 생산시설에 도입하였습니다. 아울러 향후 LNG 연료 추진 선박 도입 및 신재생 에너지 동력 사용 등도 검토하고 있으며, 이를 통해 이산화탄소 저감 노력을 지속할 계획입니다.
In addition, from an ESG perspective, in the process of production, we are trying to cut back on the CO2 emissions that we have. So from the time of the design, we have been very mindful so that we are using, are reusing the waste gas that is coming from the generator. And in terms of the various facilities, we have electrified them so that the facilities, the production facilities reflect that. In addition, we are also reviewing the possibility of using LNG fuel-based shipments and also using energy sources that would come from renewable energy sources. So through this, we will continue to try to exert our efforts to cut back on CO2.
block located in the Cuu Long Basin in the southern offshore area of Vietnam, and full-scale development is scheduled to proceed from next year with the goal of first oil in 2026. The reserves of the corresponding block are original oil in place 490 million barrels, recoverable reserves approximately 60 million barrels.
In addition, in addition to this, at the company's level, we also have received approval from the Vietnam government, for the 15-1/05 block in, the South Coast of Vietnam, in the Cuu Long Basin, for a LDV structure development. So the current target is to hit first oil in 2026, and, for that, we will actually engage upon the full-fledged development from next year. In addition to that, if we were to look at the reserves of this block on a PIP basis, it's 490 million barrels, and in terms of the recoverable reserves, it represents approximately sixty, sixty million barrels.
currently in Vietnam's Block 16-2, exploratory well drilling work to confirm the existence of hydrocarbons is in progress, and we expect to confirm positive results in the near future. In addition, in Vietnam's Block 15-2/17 and SK 427 block in Malaysia's Sarawak region, oil exploration work is being performed.
In addition, in Vietnam, we also have the 16-2 block, and right now, we're currently verifying whether there is any hydrocarbon in this area. So we do have an exploration well that is under process, and we do believe that we will be able to come back with positive results in the not too far future. In addition to that, in Vietnam, there's also the 15-2/17 block, and in Malaysia, in the Sarawak region, we have the SK 427 block, which is also currently looking for and exploring for oil.
SK Earthon [Foreign Language] 은 석유 개발이라는 기존의 업스트림 영역에 더해 그린 영역을 새로운 성장축으로 선정하여, 2023년 현재 CCS, Carbon Capture and Storage 저장소 중심의 사업 기회 확보와 지열 에너지 등 신규 그린 사업 아이템을 발굴하고 있습니다.
So in addition to our traditional EMP business, for SK Earthon, we are continuing, of course, to make inroads in the upstream area here, but we're also adding on, in the green areas as a new growth driver. So as of 2023, for the carbon capture and storage area, we are focusing on the storage side of that dynamic to look for our business opportunities. And also for new green areas, we continue to develop new business items.
[Foreign Language] 네, 이상으로 사전 질문에 대한 답변을 마치고 이어 현장 질문을 좀 받도록 하겠습니다. 질문하시는 분들은 소속 기관과 성함을 먼저 말씀해 주시고 질문해 주시기 바랍니다. 지금부터 질의응답을 시작하겠습니다. 질문을 하실 분은 전화기 버튼의 별표와 1번을 누르시기 바랍니다. 질문을 취소하시려면 별표와 2번을 누르시면 됩니다. 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. 처음으로 질문해 주실 분은 Morgan Stanley의 신영석 님입니다. The first question will be provided by Young Suk Shin from Morgan Stanley. Please go ahead with your question.
[Foreign Language] 예, 안녕하세요. 저 질문 기회 주셔서 감사합니다. 두 가지 질문드리겠는데요. 첫 번째는 최근 Ford랑 이제 Volkswagen에서 자체 EV 타겟 물량 좀 조정이 있는 것 같습니다. 그래서 그거 관련해서 사분기랑 내년 가동률 예상치가 혹시 있으신지, 궁금하고요. 두 번째는, 미국에서 이제 UAW 파업이 대충 이제 마무리가 된 것 같습니다. 그래서 이거 관련해서 SK On에 미치는 영향을 어떻게 보시는지, 판매랑 좀 수익성 관점에서 설명해 주시면 감사하겠습니다.
Yes, thank you for the opportunity to ask questions. There are two questions. First is that if you look at the recent announcements that are coming from Ford and also Volkswagen, it seems to be that for their EV target volume, there has been some adjustment there. So as a result of that, for your battery business in the fourth quarter and also for next year, what are your expectations about overall utilization? In addition to that, the second question that I would like to ask you is that, it seems to be that the UAW strike is coming to an end. In terms of any impact on SK On, in terms of the sales and profitability, what do you expect to happen there?
Yes, SK On. Park Jeong-ah imnida. [Foreign Language] Dapeun drigetseumnida. Myeonjo Ford mi Volkswagen gwalyon, jilmun dapeun drigetseumnida. Chaegen EV sigang sok, sokdu, sungjang sokdu e daean sigang-ui ullyoe daeiseoneun, jeohido, injireul hago isseumnida.
This is Anna Park from SK On, and maybe I can take your first question. About the question about Ford and Volkswagen and the adjustments that are taking place there. We are aware of the market concerns that currently are taking place about the recent growth that is taking place in the EV market.
Shinhan dangsaneun, yuyeonhan global line [Foreign Language] gaejoowa, jeonhwan-eul tongheseo, suisung hwakbolo wihae tallyeokjeogin unyeong-eul haenaago isseumnida.
However, that have been said, in terms of our line operations, we are trying to be very flexible and, through various conversions, we are trying to make sure that we're very flexible in terms of the operations.
[Foreign Language] OEM-ui ilsiyeogin panmae jungam-e ddaeruneun gadongnyul jojeong-eun, sangsi basseung hal su itgo, sigang saengsa, sigang-ui saengsan mi panmaeyang jamso e daean ullyoe-ga isseul su itjiman, geu dangsa-e daeun yeonghyang-eun hyeon sipjeom-eseo jehanjeogimnida.
So as the overall sales volume at the OEM side goes up and down, of course, on a very regular basis, there will be adjustments that we make to our overall utilization. That said, of course, there is some concern in the market right now about a possible decrease in production and also sales volume. However, as of the current time, the overall impact on our operations is very limited.
[Foreign Language] Gadongnyul jeongmangchi e daeiseo, 20%-eseo guchejeogin sujaro masseumdeurigi gullanhan jamun, yanguiui masseum butakdeurigoyo. 다만 사분기와 내년에도, jeohinun mulyang junga jusaeneun jisokdael geotsero jeongmanghago isseumnida.
In terms of the overall outlook for our utilization, please understand that it would be difficult to share specific numbers with you as of this time. However, what we can say is that into the fourth quarter and into next year, we do believe that our overall volume will continue to increase.
[Foreign Language] Dangsa-neun cheot beonjjae, Bukmi jiyeok jungsim, du beonjjae ibjeungdoen iconic model jungsim-ui seondojeogin suju. Se beonjjae-neun JV jungsim-ui portfolio gukguk deungeuro hyeonjae Miguk mirae EV suyo byeonhwa risk-ui sangsaejeogiro jehanjeogin yeonghyang-eul yesanghago isseumnida.
In addition to that, that have been said, we also believe that we will actually be, on a relative basis, less impacted, and also limitedly impacted by any changes in EV demand going forward. And the reasons for that would be, first, because we are focused in the North American region. Secondly, in terms of our overall ordering activities and marketing activities, we have been more selective with our orders based upon proven and iconic models. And third, the fact that the overall portfolio that we are building is focused on JVs.
the UAW strike-related issue in the U.S., the extent to which we can respond immediately is limited. We understand that it is a temporary production suspension at Ford. At this time, we will continue to monitor the situation and respond accordingly.
To move on to the second question, with regards to the UAW strike and the situation there, I do think that from the company side, what we can say about this is limited. However, we do understand that in the case of Ford, that there has been a preliminary agreement that they have been able to strike. So as a result of that, we continue to look at what the trends are and monitor the situation.
[Foreign Language] Jilmun jusin panmae suisung gwalyon yeonghyang-e daeiseoneun, EV gongjang pahw-eun basseungaji anaessseubnida. Ddae rasa dangijeogin dangsa yeonghyang-eun mimihal geotsero, pandanvimnida.
To move on to the point that you have asked about, the overall sales and overall profitability impact. Of course, the EV factories were not subject to the strike. So in terms of the short-term impact, we do think that it would be insignificant.
long-term perspective, there could be ripple effects from rising labor costs. We will adopt such things as AGV, the automation logistics equipment, and OHT, called Overhead Transfer Conveyor, and through smart factory transformation, continue our cost reduction efforts and manufacturing competitiveness expansion.
However, over the mid to long term, there could be some concern that labor costs may increase. However, in light with that, what we are planning to do is that, on the logistical side, we do have automated logistics, in place, AGV, which would be Automated Guided Vehicles, and also OHT, which, represents Overhead Transfer Conveyors. So with those initiatives, we will also create a smart factory to ensure that we are able to continue to strengthen our manufacturing competitiveness and cost savings. The following question will be presented by Hyun-Yeol Jo from Samsung Securities. Please go ahead with your question.
The following question will be presented by Hyun-Yeol Jo from Samsung Securities. Please go ahead with your question.[Foreign Language] 네, 안녕하세요. 삼성증권 조현열입니다. 질문 주셔서 감사드립니다. 크게 세 가지 질문드리려고 하고요. 배터리, 화학, 그리고 신규 사업 나눠서 질문드리도록 하겠습니다. 먼저 배터리 같은 경우에는, 저희가 2023 상반기에 이제 유럽이랑 중국 신공장을 가동할 계획인데요. Ramp up 속도가 어떨지가 좀 궁금하고요. 그리고 저희가 거의 한 일 년 만에 대규모 증설을 하는 것인데, 그걸 감안하더라도 실적이 QOQ로 개선이 가능할지가 궁금합니다. 그리고 두 번째로 화학 같은 경우에는 저희가 이제 Ulsan ARC에 대해서 최근에 언론 보도 나온 것들이 11월 초에 기공식을 하고 2025년 말에 가동을 계획할 것으로 나와 있는데요. SK geo centric의 폐플라스틱 재활용 사업 관련해서 지금 사업 현황이랑 그리고 관련 시장 전망에 대해서 의견 공유해 주시면 감사드리겠습니다. 그리고 마지막으로는 최근 SKTI가 Daekyung O&T 지분 투자를 했었는데요.
[Foreign Language] 이 지분 투자 배경이랑 이게, 이제 아무래도 SAF랑 관련이 돼 있을 것 같은데, SAF 관련 사업 전략을 공유해 주시면 감사드리겠습니다.
Yes, there are three questions that I would like to ask you, and they are each about your battery business, your petrochemical business, and your new business areas. First to ask a question about your battery business. In 2024, you are planning to put online your European and also Chinese new capacity. So in terms of the ramp up there, how fast do you actually believe that that will take? And in addition to that, this is a, you know, large-scale capacity addition that is taking place in almost a year. So do you still believe that in light of this capacity addition, you will be able to show stronger performance on a QOQ basis? The second question that I would like to ask is about your Ulsan ARC.
There have been news reports that you will be actually having a commencement summary in early November with the target of actually starting commercial production in 2025. So for SK geo centric, in terms of the overall business of waste plastic recycling, and also the outlook for that, if you could share that, that is something that would be appreciated. The last question that I would like to ask you is about the recent investment that has been made by SKTI into Taekyung ONT. If you were to be able to talk about that, that would be something that we would like to hear about also. Thank you.
So this is Anna Park from SK On, and maybe I can take your first question.
If we look at the overall Hungary and Chinese factory that is expected to go online next year, the actual locations of these factories is clear, close to sites in which we already have very high yield. So as a result of that, we do believe that we will be able to stabilize the initial yields in a very early manner. So as a result of that, if we were to talk about the impact from the capacity add-on in itself, which was your question, we do think that that will be limited. And maybe using this opportunity, I can also talk about new systems that we have, two new systems that we have put in place to achieve a early ramp up. So the first strategy that we have is to initiate a core team.
What this core team is, is it's representing people who do represent the production side and also the manufacturing side and have accumulated experience working at other sites. So these people will be inputted in the beginning of three or six months to ensure that the overall ramp-up process goes very smoothly. And the second is that we are trying to implement and also expand the adoption of a real-time production monitoring system. By doing this, what the overall goal would be is that for issues that we are not able to prevent in advance, we would be able to detect them early on to ensure that we take measures accordingly in a very swift matter after they have appeared.
Yes, this is Yong-su Kim, the Head of Management and Planning Office from SK geo centric, and maybe I can take your second question. So since your question was two parts, one was the outlook for the market, and the second was the current process that we are currently making, I will take those parts one by one.
[Foreign Language] 시장 전망은 국내외 환경 규제 및 정책과 여러 글로벌 브랜드 오너들의 친환경 목표 선언으로 인해서 중장기적으로 리사이클 플라스틱 수요는 지속적으로 증가할 것으로 전망하고 있습니다.
First, to talk about our outlook for this market, of course, because of various environment-related regulations that are taking place in Korea and outside, and also because there are various brand owners that have declared to be more green in the future and make a green transition. As a result of that, over the mid- to long-term, we do believe that the demand for recycled plastics will continue to grow.
[Foreign Language] 두 번째, 당사 사업 진행 현황 말씀드리겠습니다. 당사는, 양질의 폐플라스틱 원료를 확보하고 고품질의 리사이클 소재를 생산하기 위해서 자체 기술 개발 및 케미컬, 리사이클 기술 보유 파트너와의 협력 등 리사이클 분야 기술을, 더 총 결집한 울산 ARC 구축을 추진 중에 있습니다.
Second, to talk about the various initiatives that we have on the business side. In order to secure the feedstock that is required for waste plastic development, high quality, you know, materials in this area, and also to ensure that we are able to produce a very high quality recycled material, we are continuously making effort to develop our own proprietary technology and also cooperate with partners that have technology in the chemical recycling area. So we do believe that the full integration of that would be the Ulsan ARC that we are planning.
[Foreign Language] 구체적으로, mechanical recycle, 몇몇 mechanical recycle 업체에 대한 M&A 및 지분 투자 등을 통해서 양질의 폐플라스틱 feedstock 확보를 추진하고 있으며, 3대 CR 기술인 열분해유, PET 해중합, 고순도 PP 추출, 리사이클 소재 기술에 대해서, 저희 이미 확보하였거나 확보를 위해서 지금 노력하고 있습니다.
So as a result of that, with regards to mechanical recycling, companies, right now, we are trying to secure the feedstock that is related, needed for that, in terms of making possible M&As or also equity investments in such companies, to ensure that we're able to secure the high quality waste plastic. And with regards to the chemical recycling side, for the top three technology, which would be, pyrolysis, also, PET depolymerization, and also high purity, PP extraction. For these technologies, we already have either secured them or in the process of securing these technologies.
[Foreign Language] 현재 울산 지역의 부지 정지 작업을 진행하고 있으며, 25년 완공 예정에 하고 있습니다.
In the Ulsan area right now, we are actually preparing the site for the project, and we are planning to complete the overall construction by 2025.
[Foreign Language] 세 번째 질문, SK Trading International의 김충탁입니다. 세 번째 질문 말씀드리겠습니다. 먼저 그 태경 ONT 지분 투자 배경부터 말씀을 드리겠습니다.
So this is Kim Chung-tak from SKTI, and maybe I can go through the third question. First, starting to the background of why we made the equity investment in Taekyung ONT.
[Foreign Language] 현재 세계 각국은 항공유, 항공용 연료 소비 과정 중에 나오는 탄소를 줄이고자 노력하고 있으며, 이에 대한 대안으로 바이오 연료, 합성 원유 기반 연료 등 지속 가능한 연료를 모색하고 있습니다.
So if you look at the various countries across the globe, of course, all countries are trying to cut down on the carbon emissions that is coming from the process of consuming jet fuel. So as a result of that, as an alternative, there continues to be exploration of sustainable fuel alternatives, which would be biofuel and also syncru-based oil.
Taekyung ONT는 1995년 설립되어서 현재 전국 13개 사업장에서 바이오 항공유 원료가 되는 UCO, tallow를 전문적으로 생산하는 업체입니다. 이에 SK Trading International은 바이오 항공유 시장에 대한 선제적인 준비가 필요하다고 판단하여 이번 투자를 결정하게 되었습니다.
If you look at the Taekyung ONT, this is a company that was established in 1995, and across 13 different business locations nationwide, it is able to very professionally produce UCO and tallow, which is the material that is used to create biofuel, bio-aviation fuel. So as a result of that, at the SK Trading International level, we did believe that there need to be a preemptive preparations for this market going forward. So that is why we decided to make this investment.
[Foreign Language] 두 번째, SAF 사업 전략 관련하여 말씀드리겠습니다. 항공 분야 넷제로 달성의 주요 수단인 SAF에 대한 의무화 정책은 지속 확산될 것으로 보고 있습니다. UN 산하 ICAO는 항공 분야 탄소 배출량을 2035년까지 2019년 대비 85% 유지하는 제도를 수립하였고, 회원국들은 2027년부터 의무적 참여를 본격 시행할 예정입니다.
Next, maybe to introduce our broader strategy that we have for the sustainable aviation fuel or SAF area. Of course, if in the aviation area, of course, the obligatory adoption of SAF may be a very important tool to reach net zero. And as a result of that, the adoption of this is expanding very quickly. If we look at the International Civil Aviation Organization under the UN to cut down on CO2 and emissions in the aviation area, the overall target would be to cut down by 85% or maintain at an 85% level versus the 2019 levels until 2035. So as a result of that, for member countries from 2027, there will be a mandatory participation requirement. Yeah, EU.
So in the E.U. area, reflecting this, the overall mandatory mix of SAF that will go into the E.U. area will be 2% in 2025 and gradually increase to 70% by 2050. In the case of the U.S., right now, the penetration target for SAF would be 10% in 2030 and also 100% by 2050. So right now they're in the process of detailing the overall mandatory policy for that. So for each country and each region, according to their own situation, of course, they are in the process of detailing and creating more details about their overall SAF policy in terms of the size and also the timing of what is required.
And as a result of that, we do believe that demand in this area will significantly grow. So as a result of that, for SAF material right now, the overall impact on cutting carbon is very high. However, in terms of the feed available, availability, it's actually not very strong in the UCO and tallow area, in which we have been able to gain an early foothold. And we will continue to be able to secure more SAF material in a stable manner. In addition to that, not only on this side, but we also are planning to broaden our overall business scope to other areas.
By doing that, when the overall SAF market does really take off, whether, you know, within the region or outside, we will be able to make timely supply accordingly.
The following question will be presented by Henrik Jeong from Daiwa Capital Markets. Please go ahead with your question.
[Foreign Language] 네, 안녕하세요. 다이와 증권 정현희입니다. 질문해 주셔서 감사합니다. 저도 두 가지 질문이 있는데요. 두 가지 질문 모두 다 SK On 쪽일 것 같습니다. 첫 번째 질문은, 지금 삼 분기에 미국 쪽 수요 개선도 지속되었고, 그리고 AMPC 반영 금액도 확대되었고, 또 환율도 생각보다 높은 수준으로 지속되는 등 좀 긍정적인 상황이 지속되었는데, 그럼에도 불구하고 저희가 여전히 적자를 기록한 가장 큰 원인이 무엇인지, 조금 더 자세한 설명 부탁드리겠습니다. 그리고, 사 분기 방향성도 같이 말씀해 주시면, 도움이 많이 될 것 같습니다. 그리고 두 번째 질문은, 저희 파트너사의 보드에서 이제 최근에 high nickel이 아니라 mid nickel이나 LFP 같은 좀 저가 chemistry의 채용을 늘리는 움직임이 있는 것으로 보이는데, 이에 대한 당사의 대응 방안 및 의견 말씀 주시면 감사드리겠습니다. 감사합니다.
Yes, thank you. There are two questions that I would like to ask you, and both questions are related to SK On. The first question is that if you look at the Q3 performance, it does seem to be that the yield in the U.S. has improved. There was a larger contribution from AMPC, and the exchange rate continued to maintain a very weak one situation, which was all in your favor. However, nevertheless, if you look at the operating losses that you had, it does seem to be continuing. So could you explain why the situation is such? And also talk about what you believe the fourth quarter will represent in terms of overall direction. The second question that I would like to ask you is about Ford.
Recently, they have announced that they will continue to adopt more mid nickel or LFP type batteries rather than high nickel batteries. So in terms of what your strategy and plan would be in this area, I would like to hear about that also. Thank you. So this is Anna Park from SK On, and maybe I can take your first question. If we were to talk about the main driver, it would be the negative lagging effect that we have seen due to the fall in metal prices. So, nevertheless, of the situation, if you look at our overall performance in terms of the overall operating margins that we have or the rate at which the operating losses have taken place.
The degree of that is at the lowest level since we actually spun off. And as a result of that, we do actually have high expectations for better profitability. And in the fourth quarter and going forward, we do continue to believe that the overall trends that we see in the yield improvements in the U.S., also higher contribution coming from AMPC, will continue. And added to that, we will have cost savings efforts that we will engage upon. So we do believe that profitability, profitability will continue to improve. SK On and Jong-won Kim, so this is Jong-won Kim from SK On, and maybe I can take your second question.
So in terms of the overall situation right now, based upon the high level of technical expertise that we have, of course, we do continue to make a very steady progress in the mid nickel area, which does require a relatively lower level of technology than high nickel. So as a result of that, we will continue on this path to be able to deal with the overall market trends, and also customer demand that is becoming more diversified.
In addition, on the LFP side, based upon the technology expertise or the experience that we have had in directly developing a cell, approximately a decade ago, we are actually have completed the development of an upgraded LFP, versus the, you know, existing mainstream technology that does represent a more high energy density, faster charging and also better performance in low temperatures. So, if we look at the situation of the Korean battery producers, in last March at InterBattery 2023, we were able to showcase this prototype EV LFP battery. So, again, in terms of the overall cell development for LFP, this has been completed. So right now we're engaging in discussions about possible product development and also in terms of supply with various customers.
So in aligning to the overall needs that we see at the customer side and also the orders that we will secure, we are going to come up with more detailed production plans. The following question will be presented by Jin Myong Lee from Shinhan Investment & Securities. Please go ahead with your question. Yes, thank you for the opportunity to ask questions. I have two questions that I would like to ask about your refinery business. The first question is that if you look at the third quarter, for their overall refinery performance, it seems to be very solid, and this was on the back of higher oil prices and also refining margins. So what would be your outlook about... for the fourth quarter and also for next year in terms of the market backdrop?
If you could elaborate about your expectations for crude going forward and refining margins, that would be appreciated. The second question that I would like to ask you is that if you look at the U.S., from the likes of ExxonMobil and also Chevron, there's very active M&As that are going on on this side. So I would like to ask you, what would be your view about the peak of the market, in the future? And also, what would be the overall expectations that you have or strategy for the refining business accordingly? SK Energy. This is Moon Gwan-chin, the Performance Management Team Leader at SK Energy. And maybe I can address the question that you have first asked about our fourth quarter and also, next year expectations.
First, to talk about the overall outlook that we have, we do actually believe that the market backdrop will continue to be very solid. And this is based upon the fact that in terms of demand coming from China for crude and also in the US and also India, it does seem to be that there is very effective growth that continues to take place there or increases. And on the supply side, from the OPEC Plus, you know, led by Saudi, it does seem to be that they are managing supply. So we do think that the imbalance in supply and demand will be something that will continue. And added to that, because overall inventory levels in on a global basis are remaining low, we do think that that will support the market.
So as a result... In addition to that, if we look at the FOMC, that's that is to be scheduled in November, we do think that with that, there may be an end to the overall monetary policy cycle, and also better expectations about a soft landing taking place, which would always also support the overall market situation. In terms of our demand for oil and crude, if you look at the market right now, from institutions such as the IEA, there is an overall outlook that it will be of a level of maybe 1 million barrels. And then on the OPEC side, they are forecasting 2.25 million barrels per day. So I do think that there is a mix in various views.
So if we share our view about the situation and the outlook for the market in 2024, for the reasons that we mentioned before, which would be, you know, additional global recovery that is taking place in demand, and also the soft landing that is expected in the U.S. market, we would be having a view that versus the 2023 levels, that the addition or growth would represent around 1.5 million barrels per day. Maybe to move on to the second question that you asked. After the pandemic took place in 2023, if you look at overall crude demand, it has normalized in terms of the overall trends. So as the global economy continues to grow, we do expect that demand for the time being will continue.
In addition to that, if you look at EV penetration and also renewable energy use, this is an area in which there continues to be progress. However, to completely, you know, take out and also be an alternative to crude, we do think that for that transition to take place, a lot of more time will be required. So that have been said, if we look at our outlook for the next three years, in terms of the overall, demand side, for crude, we do think that, it will continue to grow at a very solid pace of around 1.1-1.5 million barrels per day.
Whereas in terms of the capacity addition that the refineries are releasing or putting out as of the current date, in 2023, there was around 1.8 million barrels per day. And then, that would be, you know, some, the high level, and then, from 2024 thereafter, it seems to be trending down to an additional 50,000- 600,000, rather, barrels per day. So as a result of that, we do think that the new capacity additions will not be able to cover the increase that we see on the demand side. So as a result, we do think that the imbalance in supply and demand will be something that will continue going forward.
In addition to that, to talk about when we believe the demand will reach its peak in terms of global oil. Of course, according to the energy transition scenario that each institution has, I think that everyone has a different view that it will be sometime around 2030 to 2035. And as a result of that, with regards to our mid to long-term outlook, we do think that the fact in itself that there will be an energy transition in the future is probably something that is clear. However, in terms of what the speed of that will be and what the scale of that will be, is, I believe, still uncertain, as we can see from recent developments. So as a result of that... Excuse me.
For the company right now, rather than trying to correctly estimate when the overall demand peak will come, we are a bit more focused. Excuse me. In terms of being able to set in place a business model that would be able to deal with the situations that arise in the future, and also continue to generate a high level of profitability. So, that is, you know, enabling us to be in a position in which we would have various strategic options is something that we want to do.
The last question will be presented by Woo-jae Jeon from KB Securities. Please go ahead with your question.
So being mindful of time, maybe I can ask one question, and the question that I would like to ask is about your battery business. In addition to the questions asked before, in light of the overall slowdown in EV demand that is taking place, I would like to ask you, is there any change to your capacity addition plans that you have, whether it be in a JV form or for SK On only capacity that you're planning?
Yes, SK On, Kim Kyung-hun. So this is Kyung-hun Kim from SK On, and maybe I can address your question. So as the market has been in concern in terms of the electrification pace of OEMs, we do see somewhat of a slowdown taking place in that area.
However, if you look at the overall impact on our capacity addition schedules, we expect it to be limited. So if you look at the main projects that we have currently ongoing, it would be the Ford JV and also, Hyundai Motor JV. With regards to the Ford JV, during Ford's earnings release this quarter, there was some comment about that. So for the 2026 planned, Kentucky 2 factory, there is some review about possibly delaying that factory. However, that have been said for the Tennessee and also Kentucky 1 factory, that is something that will go according to schedule and start mass production in 2025.
In addition, as was mentioned in recent news reports, for the Hyundai Motor factory in the U.S., in actuality, the overall completion timeline has been accelerated from 2025 to 2024. So as that indicates, for the Hyundai Motor JV, everything is going very smoothly according to schedule.