10 February 2004 15:48 [Source: ICIS news]
LONDON (CNI)--BP is not prepared to live with underperformance in petrochemicals, group chief executive John Browne stressed on Tuesday, when presenting financial results for the 2003 fourth quarter and full year, although he gave no details of new operational initiatives or divestment plans.
Returns from petrochemicals have averaged only 6% over the past five years, Brown said, and despite ongoing “special circumstances” the company must continue to evaluate its portfolio, he stressed.
BP currently has two businesses up for sale: specialty intermediates and fabrics and fibres. Its interest in AG International Chemical Company, a producer of purified isophthalic acid (PIA) in Japan, was sold in the quarter.
CNI learned today that the specialty intermediates sale is expected to be concluded in the early part of this year.
BP plans to have 90% of its petrochemicals portfolio focused on seven core products by 2006, according to the petrochemicals strategic plan outlined a year ago. This compares with the current focus of 70%, so further divestments and expansion of the core businesses are expected.
The company is pursuing a programme designed to lift chemicals returns by approximately 3% by 2006.
BP reported slightly higher petrochemicals margins in the fourth quarter but profits of only $35m compared with the $139m earned in the similar 2002 quarter and profits of $124m reported for Q3 2003. Over the year, the petrochemicals return on capital employed (ROCE) was about 5%, CNI was told.
Currently petrochemicals margins continue to be under pressure but there are some signs of improvement driven by stronger economic growth and higher capacity utilisation, BP said.
These costs were incurred after force majeure was declared in nitriles following an ammonia plant outage in Cologne. Nitriles customers in China stopped buying during the quarter putting further pressure on the business. The problem has since been resolved.
Petrochemicals made non-routine debt provisions in the quarter, Conn added, and faced higher pension and benefits charges in Europe. The strong Euro and weak dollar also had a negative impact.
“Maybe the future will develop better (in petrochemicals)," Brown said at the annual results press conference. “But we will continue to look at this business,” he added. “Our focus on cost efficiency in the sector continues."
Conn elaborated saying that petrochemicals capacity rose 2% in 2003 while the cost base was held broadly flat. The focus on reducing costs per unit tonne of production is ongoing, Conn stressed.
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