InterviewBorealis prepared for market slowdown

05 August 2008 12:57  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Borealis is feeling the impact of Europe’s slowing economic growth in its infrastructure business but not seeing the usual summer slowdown, chef executive Mark Garrett said on Tuesday.

The plastics maker said it was prepared for a market slowdown and increased volatility.

The second quarter financial results were hit by significantly higher global crude oil and naphtha prices with the net results down 48%, compared with the similar period of last year, at €71m ($110m). Second quarter sales were 15% higher at €1.83bn.

“We are not seeing the summer slowdown to the same extent as in recent years but across Europe we are seeing a slowdown in construction,” Garrett told ICIS news in a telephone interview. The slowdown was affecting particularly the Borealis pipe infrastructure business, he added.

Garrett said in an earlier statement that Borealis anticipated ongoing volatility and a softening market and had been proactively preparing by improving cost competitiveness.

“As a result we are in a sound financial position to pursue our strategy based on value creating through innovation and to continue our ambitious investment projects in the Middle East,” he added

Second quarter operating profits which do not include income from the giant Borouge joint venture in Abu Dhabi were sharply lower at €52m from €152m in the similar period of last year and €137m in the first quarter of 2008. Some unplanned plant outages early in the quarter also affected the result.

Integrated olefins margins and margins from polyolefins were hit, Borealis said. Higher input costs pushed up working capital. Net interest bearing debt in the second quarter increased by €152m taking gearing to 41% from 36% in the first quarter.

Borealis said it had benefited in the second quarter from contributions from the newly formed Base Chemicals business, in particular plant nutrients. Base Chemicals also includes all the Borealis cracker operations apart from those held in joint ventures.

“It is going to be difficult going forward,” Garrett said, "but we have been preparing for it”. The plastics maker expects an industry downturn to last some two and a half years driven largely by olefins and polyolefins capacity additions and weakened supply/demand balances.

The company is investing heavily in its Middle East plants and expects to have 4.5m tonnes of capacity in Abu Dhabi by 2015 a capability similar to its olefins and polyolefins production capacity in Europe.

The Borouge 2 project is on-schedule for 2010 start-up, Garrett said. A new 350,000 tonne/year low density polyethylene (LDPE) plant in Stenungsund, Sweden is due for completion in the second half of 2009.

Borouge 3 is at the feasibility stage and Borealis is expected to boost it Base Chemicals capabilities through investment in the Abu Dhabi Chemaweeyaat project.

($1 = €0.64)

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By: Nigel Davis
+44 20 8652 3214

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