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Borealis net earnings decline, major project schedules to suffer slippage

August 07/2020

MOSCOW (MRC) -- Borealis (Vienna, Austria) has reported a net profit of EUR64 million (USD76 million) for the second quarter of 2020, down 80% year on year (YOY), and says its major growth investment projects will suffer delays of between “a couple of weeks and a few months” due to the COVID-19 pandemic, reported Chemweek.

The company’s 625,000-metric tons/year steam cracker at Stenungsund, Sweden, is also expected to remain offline until the fourth quarter of this year, it says, following a fire in May that saw the unit shut down and force majeure declared.

Borealis says the lower earnings were driven mainly by a negative inventory value development due to lower oil prices, a reduced advantage from the use of light feedstock versus naphtha, and the unplanned cracker outage in Sweden. Net sales of EUR1.53 billion were down from EUR2.14 billion a year earlier, while total sales including its Borouge joint venture with Abu Dhabi National Oil Co. (Adnoc) declined 26% YOY to EUR1.89 billion.

The company says polyolefins sales volumes remained “relatively stable, even during the pandemic,” while the contribution from its fertilizer business was at the same level as a year earlier. Borouge recorded higher sales volumes YOY, but weaker polyolefin prices in Asia impacted earnings negatively, it says.

In an exclusive interview with CW this morning, Alfred Stern, CEO, and Mark Tonkens, CFO, discussed the progress of the company’s major growth projects, a positive outlook for the remainder of 2020, and the impending change in its ownership structure. The polyolefins industry in Europe has been impacted by COVID-19 and the oil price plunge since the end of the first quarter, but certain segments of the company’s portfolio are performing well, Stern says. This includes healthcare, parts of its consumer packaging business, and its fertilizers segment, “but our automotive business has not been spared the challenges experienced by many players in this industry,” he says. The resilience program launched by Borealis earlier this year to reduce costs and investments is helping to maintain positive results and strong cash flow during the pandemic, he says.

The company expects net profit to increase in the second half of 2020 compared to the first half, partly due to the “substantial inventory devaluation” it incurred in the second quarter that “will not happen” in the next six-month period, Tonkens says. Sales volumes in the quarter remain encouraging at almost the same level as last year despite the pandemic, while its light feedstocks advantage which “vanished” earlier in the second quarter is now returning, he says. “In June we started to see that coming back, to an extent,” he notes, adding that the company has built its feedstocks business to be flexible, “so we can react to different conditions.”

Borealis’ strong product portfolio during “a deep crisis like this” has been supported by a “good strategic set up” and the company’s ability to shift quickly from sectors with lower demand towards higher demand segments, Stern says.

The company remains committed to and continues to progress construction at its three major growth projects—the Kallo, Belgium, propane dehydrogenation (PDH) plant; its Baystar 50/50 JV with Total in the US; and the PP5 Borouge polypropylene (PP) project at Ruwais, Abu Dhabi—but the impact of the pandemic means “there will be a slide” in their schedules, according to Stern. “We are looking at delays ranging from a couple of weeks to a few months on these projects,” he says. The 750,000-metric tons/year PDH plant at Kallo was originally due online mid-2022 before that later shifted to nearer the end of the year, while the Baystar steam cracker and Borstar polyethylene (PE) plant are expected online in early 2021 and early 2022, respectively. Stern told CW in May it was “unrealistic” to expect the projects to be completed on time due to current circumstances.

Borealis expects to reach the next milestone before the end of this year on a potential USD4-billion PDH and PP project in India, in partnership with BASF, Adnoc, and the Adani Group, when it will then decide “how we can further proceed,” Stern says. The companies signed an agreement last year to carry out a joint feasibility study to evaluate the proposed complex at Mundra, India. Earlier this year Borealis pulled out of a proposed USD6.8-billion development for an integrated ethane cracker and PE project in Atyrau, Kazakhstan. “That was a pure business decision,” he says, based on the results of a feasibility study and a longer-term view that the opportunity was “not sufficient to invest such a huge amount.” Borealis said in May the company would reduce its 2020 capital expenditure by 25% to EUR750 million from the original plan.

On the agreed change in ownership arrangements by the company’s two shareholders, Mubadala (Abu Dhabi) and OMV (Vienna), for OMV to increase its share to 75% from 36% at present, Stern says the transaction is still expected to complete in the fourth quarter of this year. The ongoing focus on sustainability by both Borealis and OMV is expected to lead to “more opportunities on how we can work together,” in a circular economy, he says.

Stern also says that Borealis “is not in a rush” to find a potential partner or partners for its fertilizer business, but that “if the opportunity arises, then we would still be interested.” The fertilizer market in Europe “would benefit from more consolidation,” he says.

As MRC informed earlier, Borealis has maintained its cracker in Stenungsund (Sweden) offline longer than initially anticipated, after it was shut following a force majeure declaration at the site on May 11, 2020. Sources said that the unit has been offline longer than initially expected with no confirmed startup date. The Stenungsund cracker has an ethylene capacity of 625,000 tonnes and a propylene capacity of 150,000 mt/year.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Borealis is a leading provider of innovative solutions in the fields of polyolefins, base chemicals and fertilizers. With headquarters in Vienna, Austria, Borealis currently employs around 6,500 and operates in over 120 countries.
Author:Margaret Volkova
Tags:Europe, PP, PE, crude and gaz condensate, homopolymer PP, propylene, HDPE, ethylene, petrochemistry, Borealis, Austria, Russia, Sweden.
Category:General News
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