UPDATE 2-SK Innovation sees gradual recovery in refining margins in 2021

* Refinery margins expected to gradually improve in 2021

* CDU utilisation rate to be kept low to minimize losses

* 2021 Capex of 4-4.5 trln won, similar to 2020 level (Adds comments from earnings conference call)

SEOUL, Jan 29 (Reuters) - SK Innovation Co Ltd, the owner of South Korea’s top refiner SK Energy, said on Friday refining margins are expected to gradually recover this year on a pick-up in fuel demand as the impact of COVID-19 eases.

The company, which has been battered by weak margins during the global pandemic, posted an operating loss of 243 billion won ($218 million) in the October-December quarter.

It was the fourth straight quarterly operating loss, and compared with an operating profit of 88 billion won for the year-ago period.

SK Innovation, which has a total refining capacity of 1.115 million barrels per day (bpd) at plants in Ulsan and Incheon, said it operated it facilities at 61% of capacity on average in the quarter, down from 79% a year earlier.

It flagged in October that the CDU utilisation rate would fall in the fourth quarter from the third quarter’s 72%.

The rate will be held at about 60-70% during the current quarter, a company official told Reuters.

Capital spending for 2021 was expected at about 4-4.5 trillion won this year, similar to last year’s level, the company said.

About 70% of the funds have been earmarked for its small but growing battery and material related businesses. The battery business accounted for only about 6.5% of SK Innovation’s total revenue during the quarter. The company said the business aims to turn a profit in 2022.

SK Innovation supplies electric car batteries to Volkswagen and Ford Motor Co among others, and said on Friday it plans to invest 1.3 trillion won at its battery unit in Hungary to build a third battery plant.

Construction will start in third quarter, with first production targetted for early 2024, it said in a regulatory filing.

Shares of SK Innovation were up 5.2% as of 0248 GMT, against the broader market KOSPI’s 0.8% fall.

$1 = 1,115.9000 won Reporting by Heekyong Yang and Joyce Lee; Editing by Rashmi Aich and Richard Pullin