Europe in a 10-year period of stagnation – Borealis CEO

22 November 2012 20:24  [Source: ICB]

Pic credit: nonePic caption: The economic stagnation that has led to high unemployment is likely to continue, says Borealis

Borealis CEO says the region will experience a prolonged economic slump because of political inertia

Europe has entered a 10-year period of stagnation, due in part to an unwillingness by EU politicians to make substantive structural changes to their economies, Borealis CEO Mark Garrett says.

In a telephone interview following the publication of the company's financial results for the third quarter of the year, Garrett told ICIS that he believes Europe has entered a period of entrenched economic stagnation, akin to that experienced by Japan.

He said: "I believe Europe has entered a 10-year stagnation period, just like the Japanese have suffered, and we can't expect [Mario] Draghi at the European Central Bank to fly in like Superman and rescue all of the politicians who aren't prepared to make any fiscal or structural changes to the economy."

ECB president Mario Draghi has committed the bank to moving beyond standard monetary policy in a bid to stabilise the EU economy, recently launching a programme to buy unlimited debt from struggling eurozone governments, provided they sign up to reforms. However, the impact of the ECB's interventions in the market is subject to diminishing returns, according to Garrett.

"The impact of each additional monetary measure is that each time Mario Draghi prints more money, the bang for his buck goes down, so until we get to a situation where we're prepared to make the fiscal and structural changes, that will continue," he said.

Borealis' net income for the third quarter was up 21% year on year to €129m ($165m) on the back of increased sales, but net income for 2012 to the end of the third quarter was €380m, down 15% from the same period in 2011.

Garrett attributed the shortfall to a "struggling environment", a banner performance in 2011, and ongoing investment in Borouge 3, the latest development in the company's joint venture with the Abu Dhabi National Oil Co (Adnoc).

UNDERPINNING PROFITS

With a predicted nameplate capacity of 2.5m tonnes of olefins and polyolefins per year when it comes on stream in mid-2014, the project will be one of the most important drivers of company profits to 2016, Garrett said.

"We have a little less profitability this year, we expect that next year will be [lower]. 2013 will be the year of transitioning to a new world when we have Borouge 3 up and running in 2014, and you will start to see improved profitability for the couple of years after that.

"Borouge 3 will be the biggest single kicker for our profitability in 2014 and 2015," he added.

The plastics solutions producer managed to mitigate the impact of European market weakness with higher prices, according to Borealis' third-quarter financial statement, but some of the company's key markets, including the automotive and infrastructure sectors, remain constrained as consumers and governments alike put off large capital-intensive purchases.

However, Borealis' ammonia and urea business is less cyclic than its polyethylene (PE) and polypropylene (PP) operations, and provides a measure of stability, according to chief financial officer Daniel Shook.

"The fertilizer business, while cyclical, doesn't have the same ups and downs some of the polyolefins chain, and right now that's performing well, and providing some support," he said.

Fertilizers also provide some European growth opportunities for the company, which is primarily focusing its expansion efforts in the Middle East and Asia, Garrett added.

"For olefins and polyolefins, the key growth is the Middle East and the Far East, but for the ammonia and urea value chain, we see growth potential in Europe, especially in eastern Europe. Western Europe already does very intensive farming, and if in western Europe they use six units of fertilizer on a hectare of land, in eastern Europe they only use one, so there's a productivity gain to be made in eastern Europe," he said.

Quote: "For the ammonia and urea value chain, we see growth potential in Europe, especially in eastern Europe"

Mark Garrett

CEO, Borealis


By: Tom Brown
+44 208 652 3214



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