23 February 2012 16:16 [Source: ICIS news]
By Franco Capaldo
LONDON (ICIS)--Borealis CEO Mark Garrett said on Thursday that the group is expecting a more challenging year in 2012, but it will continue to invest in future growth.
Following a volatile second half in 2011, the Austria-based polyolefins maker said the global financial system will remain under stress because of the sovereign debt crisis, but believes it can still perform well in difficult market conditions.
“The important thing to maintain our leading position is to continue to invest, continue to have the understanding throughout the company that innovation is at the heart of all we do, and continue to measure our success,” Garrett said.
“We have plans to continue to invest, and that means we must continue to make money ... to earn the right to be able to invest.”
In March last year, Borealis broke ground on a €75m ($99m) semi-commercial catalyst plant at Linz, Austria, with completion scheduled for this summer. And in April, the group completed the €7.8m conversion of a naphtha storage cavern to hold butane at its steam cracker in Stenungsund, Sweden, in order to improve competitiveness and feedstock flexibility at the site.
Garrett also said that Borealis’s base chemicals business continues to play a key role in the company’s long-term strategy, and the group is focused on further developing that segment. On 31 January, Borealis fully acquired fertilizer producer PEC-Rhin from GPN, a subsidiary of ?xml:namespace>
Garrett added that the acquisition complements Borealis’ existing fertilizer business, and will enable the company to further strengthen that business in central and eastern Europe: “We are working hard to develop them [base chemicals] further, and are continuously looking into growth opportunities.”
However, Garrett played down the chance in the near term of Borealis making larger-scale investments similar to its petrochemical plants, Borouge 2 and Borouge 3, at Ruwais,
“I think in the press they have talked about Borouge three-and-a-half or something like that. You read the rumours, but there is nothing concrete on the drawing board,” Garrett said.
Earlier on Thursday, Borealis reported a 57% year-on-year drop in net profit to €58m in the fourth quarter of 2011 – largely a result of the European debt crisis.
Net sales fell by 4% year on year to €1.59bn for the quarter ended 31 December 2011.
“Towards the middle of the year, the various players in the global economy began to realise the enormity of the sovereign debt issue,” said Garrett.
“When markets see this, they get nervous. They seek security and safety, demand slows, and producers reduce inventories – this all has a negative impact on manufacturing industries.”
For full-year 2011, Borealis’s net profit grew to €507m, from €333m in 2010, as year-on-year net sales rose 13% to €7.10bn.
“In total, Borealis has performed very well throughout 2011, and we can be very satisfied with the result, given the circumstances. The proper execution of our strategy differentiated us from our competitors,” said Garrett.
“You will have trouble [finding] a company that has made this much net profit on this amount of sales. That’s because Borouge 2 has been a big success this year.
“As European markets began to hit difficulties, the growth of Borouge and their push into
The CEO said that, although the European polyolefins industry recorded slightly lower sales volumes in 2011 compared with 2010, with polyethylene (PE) and polypropylene (PP) sales volumes decreasing 1% and 2% respectively, Borealis sold over 3.2m tonnes of polyolefins in 2011 – an increase of 0.4% from 2010.
However, he added that average
“This shift in market sentiment had a profound impact on the European polyolefins industry, and resulted in significant margin erosion. As a result, the polyolefins business segment recorded lower profits in 2011 compared [with] 2010,” Garrett said.
Borealis’ melamine sales volumes decreased from 166,000 tonnes in 2010 to 140,000 tonnes in 2011 because of the closure of two low-pressure melamine plants at its site in Linz. However, he said the closures have further improved the cost competitiveness of its melamine business. Garrett added that the company had no plans to consolidate the segment further in 2012.
Borealis’s fertilizer business reported a sales volume of 1.6m tonnes in 2011, similar to the previous year. Garrett said the fertilizer market experienced favourable market conditions in 2011, during which a globally tight supply-and-demand balance improved industry prices and margins.
Regarding Borouge 3, Garrett said the final contracts for the expansion project were awarded during the past year. He said the investment will further support the growth ambitions of Borouge and Borealis, as it will increase Borouge’s total annual production capacity to 4.5m tonnes of polyolefins. The Borouge 3 expansion will be completed by the end of 2013 and be fully operational in mid-2014, he added.
($1 = €0.76)For more on Borealis visit ICIS company intelligence
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