InterviewBorealis base chems exceed expectations in Q1

11 May 2012 12:31  [Source: ICIS news]

By Leigh Stringer

LONDON (ICIS)--Borealis’s base chemicals business outperformed expectations in the first quarter of 2012 despite difficult market conditions and a drop in net profit, the Austria-based company's CEO Mark Garrett said on Friday.

For the chemicals industry, the first quarter of 2012 has been a continuation of a volatile second half of 2011, but due to higher fertilizer prices and strong demand Borealis’s business segment performed better than expected.

“The base chemicals business - the fertilizer business and crackers - have outperformed our expectations,” Garrett said.

The CEO added that its joint venture with Abu Dhabi National Oil Company (ADNOC), Borouge, had also performed well.

“The Borouge business has been very strong and has compensated for the extra costs that are being incurred to build [expansion project] Borouge 3,” he said.

Earlier on Friday, Borealis reported a 20% year-on-year drop in net profit to €140m in the first quarter of 2012, largely because of difficult market conditions. Net sales rose 1.2% year on year to €1.88bn ($2.44bn).

The chemical and plastics producer said the decrease in net profit was a result of the difficult market conditions, especially for the European polyolefin business segment.

“If you look at it regionally, Latin America and North America have been very nice business [regions] for us. Asia has remained relatively strong, but the world is much more aware of China than it was 10 years ago, so every time China hiccups it makes headlines across the world,” Garrett said.

“But for us we have managed to sell all the volume we’ve made at quite reasonable prices, so we think Asia has been quite good,” he added.  

“So by far the biggest struggle has been here in Europe,” Garrett said.

Looking at the polyolefins market, Garrett said the price increases that have come from the high cost of naphtha and oil has certainly made it a difficult environment.

“Certainly our customers are continuing to live from hand to mouth and when they have the feeling that the price of oil may go back a bit they hold off on ordering. And so they might hold off for two weeks just to get a couple of extra cents off the price,” he added.

“In the last couple of weeks they [customers] saw the oil price coming down and they were hoping that it would drop even further so they would get a big price difference,” Garrett said.

The CEO added that this nervousness will stay until people obtain confidence in what is happening politically and economically.  

Innovation has been a key driver for confidence in the industry, with biochemicals and biomaterials at the forefront of the market, but Garrett said practical sustainable solutions are not yet viable to enter the market.

“I don’t believe that we will ever be turning corn into ethanol in Europe, that’s not a viable situation, it’s not even viable in some other parts of the world because it lives off subsidies,” Garrett said.

“We believe it has to be a real sustainable solution before we are going to invest and we have not found one yet that is really economical and makes real sense, and that’s more sustainable than the polypropylene or polyethylene that we already make,” he added.

Garrett said that there are some niche markets for biosolutions but with many of these solutions come application problems.

“For most [bio] products there are application problems and they are a lot more expensive, so customers are not willing to take a loss in performance and pay a higher price,” he added.

“We really look at it very seriously but speaking with our researchers they say the best solution is actually recycling,” the CEO said.

Borealis has had technical problems of its own recently, with its low density polyethylene (LDPE) plant at Stenungsund in Sweden experiencing technical problems.

However, Garrett said the plant has been back up and running for a couple of weeks.

“Since we brought it back up it’s finally been running like a Swiss clock. This investment looks now like its paying off and the quality of the product coming off the machine is excellent and the reliability of the last few weeks and the throughput rates have finally reached our expectations,” Garrett said.

“But it has been a struggle to get this plant technically to where we wanted or imagined it to be. And I think the industry in general didn’t build, for many years, high pressure plants [because of this],” he added.

Garrett said the last three LDPE plants that have been built in the past few years have all struggled with technical problems.

“It's technology that I think we have underestimated as an industry and if you look, there was a couple of accidents, one with Nova in Ontario and another in the Wesseling [Germany] facility of Lyondellbasell,” he said.

“So it’s a technology that is more difficult to master than what people think. But in the last couple of weeks it looks like its really improving,” Garrett added.

Looking forward, Garrett said the expected recovery during the coming quarters will be slow, and for Borealis dependent upon increasing political and economic stability, especially in Europe.

($1 = €0.77)

 

By: Leigh Stringer
+44 208 652 3214

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