InterviewAbu Dhabi expansion and China drive Borealis profits – CEO

11 August 2011 11:52  [Source: ICIS news]

Borealis CEO Mark GarrettLONDON (ICIS)--The expansion of Austrian plastic maker Borealis’s joint venture Borouge project in Abu Dhabi drove an 82% year-on-year gain in second-quarter net profits, the company’s CEO said on Thursday.

Borealis reported a net profit of €168m ($240m) for the three months to the end of June, on the back of sales of €1.9bn. This was an increase from the same period of 2010, when the company recorded a net profit of €92m and sales of €1.6bn.

CEO Mark Garrett said that the second phase of capacity at the company’s Abu Dhabi Polymers Company (Borouge) joint venture with state energy giant Abu Dhabi National Oil Company (Adnoc) drove profitability at the firm as polyolefin margins softened in Europe.

“You are definitely seeing the effect of the Borouge 2 ramp-up,” he said. “We are now getting to 100% production rates and getting the product out to the market.”

Borouge completed the second-phase expansion of its production complex at Ruwais, 240km (150 miles) west of the city of Abu Dhabi, in June 2010 and reported that it was producing commercial volumes from the facility in October of that year. It lifted the company’s production capacity from 600,000 tonnes/year of polyethylene (PE) to 1.2m tonnes/year of PE and 800,000 tonnes/year of polypropylene (PP).

The ethane gas feedstock for the plant is provided by Adnoc, and is understood to be heavily discounted compared with input costs elsewhere in the world. Borouge is targeting the Asian market, China in particular, as its key sales destination and this has driven sales volumes, Garrett said.

Strong margins at Borouge and good sales into Asia are likely to drive the company’s profits for the rest of the year as global economic turmoil further impacts the polyolefins and basic chemicals markets Borealis works in, he added.

“We believe Asia will have a positive impact on our bottom line,” Garrett said. “We have to focus on China. You have got to hope that the Chinese know what they are doing, and their track record is pretty good so far, especially compared to the US and Europe. It’s not quite an insurance policy, but it means that when Europe turns against you, you don’t go into the red.”

Despite the company’s strong position, Garrett believes that the remainder of the year will see lower returns as fiscal and economic crises impact Western countries in particular. He expects to see profits continue to fall for a second successive quarter in the three months to September – net profits were €174m in the first quarter, 3.4% higher than the second – before rising slightly at the end of the year.

The remainder of the year will be tough, he said, but the company does not expect its profit to “come crashing down” as it did in 2008–2009 on the back of the global financial crisis.

Looking to the future, Garrett said that Borealis continues to bet on the Chinese market, and Beijing’s ability to generate domestic consumption.

Borouge will increase its overall plastics capacity to 4.5m tonnes/year by 2014 as part of a third-phase expansion of its Ruwais facilities, and plans further investment in compounding facilities in China, he said. Borouge has two compounding plants in China, one in the southern city of Guangzhou and the other at Shanghai. Both are part of major distribution hubs run by the company.

“Borouge 3 will be a success,” Garrett said. “I believe that the Chinese will manage their economy successfully over the next five years.”

Borouge is also likely to invest further in new facilities in Abu Dhabi in the future, Garrett said, as state-run firms Abu Dhabi Basic Industries Corporation (Adbic) and Abu Dhabi National Chemicals Company (Chemaweyaat) also look to build new petrochemicals capacity in the country.

“There will be more growth and investment in Abu Dhabi,” he said. “Borouge won’t stand still.”

Future capacity additions could include more specialty plastics, he added. Part of the Borouge 3 expansion is a cross-linked polyethylene (XLPE) plant which uses Borealis’s proprietary technology, while the company plans to open its new Abu Dhabi-based innovation centre by the end of 2011.

“We always try to take our products to the highest level in the value chain,” Garrett said. “We don’t run Borouge as a commodity business. We will develop it the same way as Borealis.”

In Europe, he added, Borealis will continue its “scrap-and-build” policy, modernising and improving efficiency at its existing facilities. In June, Borealis announced that it plans to close two melamine plants at its production complex in Linz, Germany, where it is investing €145m in modernisation projects.

($1 = €0.70)

For more on PE, PP and melamine visit ICIS chemical intelligence
For more on Borealis visit ICIS company intelligence

By: Peter Salisbury
+44 20 8652 3214

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