“Interest Rates Rise, Stocks Crash?”...This Stock Benefits From High Rates [Shareholder Club]

[Financial News] As high interest rates persist, growth stocks whose appeal rests on profits far in the future are losing their luster. Meanwhile, savvy investors are turning their attention to traditional value stocks that defy conventional market wisdom and use high interest rates as a powerful “catalyst.” In particular, analysts say high rates could prevent new refining capacity from being added, potentially increasing the value of companies that already own refining facilities.
On the 9th, IBK Securities said in a report that attention should be paid to the positive impact of higher interest rates on the refining industry, particularly S-Oil, which has already built large-scale facilities. “Interest rate hikes are generally considered negative for refiners because they slow the economy and weaken demand for petroleum products. However, as a key variable for the refining industry recently, supply-side effects need to be considered alongside demand,” IBK Securities noted.
The refining industry is a representative capital-intensive sector in which large amounts of capital are invested upfront and the payback period is long. As interest rates rise, the cost of capital and required returns for new projects increase, significantly undermining their economic viability. Aging facilities also face pressure to shut down because of the costs associated with environmental regulations and upgrading investments.
Lee Dong-wook, a researcher at IBK Securities, explained, “High interest rates raise the barrier to new capacity additions and accelerate the retirement of aging facilities.” He added, “Unless demand falls sharply, the utilization rates and relative asset values of existing refining facilities, including those at S-Oil, where large-scale investments have already been made, will inevitably increase.”
Another key link between interest rates and refining margins is “inventory.” Crude oil and petroleum products require substantial working capital. When interest rates rise, the financing costs of inventories for traders and distributors increase, prompting them to lower their target inventory levels.
When inventories across the supply chain remain low, even minor supply-and-demand shocks—such as scheduled maintenance or unexpected facility shutdowns—can cause spot prices for products to rise much faster than crude oil prices. This can lead to a sharp expansion in refining margins, or cracks.
Lee forecast, “For the refining industry now, the duration of refining margins matters more than their peak.” He continued, “Even if demand does not surge, limited spare supply capacity means high utilization rates and refining margins are likely to remain elevated for an extended period rather than quickly reverting to historical averages.”
Refiners are also considered promising alternatives from the perspective of capital flows in the stock market. During periods of rising interest rates, the discount rate applied to growth stocks’ distant future earnings increases. Refiners, by contrast, generate immediate cash flow, or EBITDA, from existing facilities. If that cash is returned through dividends or share buybacks, the effect of enhancing shareholder value is maximized.
In this regard, IBK Securities emphasized that refiners recorded clear excess returns compared with the broader market during the U.S. Federal Reserve’s tightening cycle from 2004 to 2006 and during 2022–2023, when interest rates rose at the steepest pace in history.
Lee added, “High interest rates apply a discount rate to new facilities, but assign scarcity value to already-built facilities with competitive advantages.” He continued, “We maintain S-Oil, which has a high upgrading rate and stable operating capabilities, as our top pick in the sector.”
[email protected] Kim Hee-sun Reporter