Price and market trends: Borealis may scrap Europe polymers plants

08 March 2013 09:27  [Source: ICB]

2013 will be a transitional year as company ramps up construction of Borouge 3 in Abu Dhabi. Plants in Europe could be shut

Borealis CEO Mark Garrett and chief financial officer Daniel Shook foresee 2013 as a transitional year for the Austria-headquartered plastics, chemicals and fertilizer producer in which the group will reach another level of profitability beyond.

 

CEO Mark Garrett expects lower profits for Borealis this year

They forecast lower profits this year, while preparations are being made that will act as a stepping stone to become a significantly more profitable company beyond 2013.

"Our expectation is that we will have lower profits in 2013 and that is because we are pre-investing in the whole start-up of Borouge 3, so we do not expect to receive from Borouge the same profits as last year," said Garrett.

"We are employing a lot of marketing, sales, technical, advisory and operations people, which are all getting trained up now, but they will not be productive in the sense until the plant starts to operate. However we need them before we start the plant to get it ready," he noted.

"That will mean 2013 should be a transitional year for us into another level of profitability. You should then see in 2014, 2015, 2016, as we line out the Borouge 3 operations, our profitability change significantly," he added.

CAPACITY INCREASE
Borouge is a joint venture between Borealis and the Abu Dhabi state oil company, ADNOC. Capacity increases from the Borouge 3 expansion project in Abu Dhabi will lift its production capacity to 4.5m tonnes/year of olefins and polyolefins by mid-2014 from 2m tonnes/year today, the company said. Production capacities for the joint venture have risen sharply in recent years.

Shook also said profits will also be influenced by its acquisitions in the fertilizer industry as the company begins to be fully integrated into the business.

On 25 February, Borealis announced that its fourth quarter 2012 net profits were 72% higher at €100m ($132m) on 18% higher sales of €1.87bn. Full-year 2012 net profits fell by 5% to €480m largely because of the weaker polyolefins margin environment in Europe, despite sales rising by 6% to €7.55bn.

"In 2012, our fertilizer business as well as our joint venture Borouge significantly contributed to our profitability," said Garrett.

 

 Capacity gains at Borouge, a joint venture with ADNOC, will continue with the start-up of phase 3

OPTIMISE EUROPE
"However, 2012 showed that the polyolefins industry in Europe is still suffering from low growth and margins, and it is likely that this will not improve materially for some time. We will further optimise our European operations in order to be sustainably profitable to grow in these volatile markets," he said.

Beyond 2013, Garrett admitted Borealis could close a number of smaller, older and less efficient plants, particularly in the polyolefins industry and across Europe, as part of its focus to drive productivity and efficiency.

"We have this scrap-and-build [taking down older plants and replacing them with new facilities] programme for the last 10 or so years, and we will continue to drive that - there will be more scrap and less build in the next phase because we have new plants we built that we can stretch further and effectively scrap a couple of plants and move products onto the new plants," Garrett said.

ASSET MANAGEMENT
Garrett could not talk specifically about which assets are likely to be scrapped.

He said: "We actively manage our assets and categorise our assets so we know which ones we want to make our top-grade products on and which ones we would favour in a scrap scenario".

In related news, Borealis reached an agreement to acquire specialty firm DEXPlastomers, a 50:50 joint venture owned by Netherlands-based DSM and US-based ExxonMobil Chemical, which Borealis said will fully complement its current polyolefins business.

Borealis is owned by Abu Dhabi's International Petroleum Investment Company (IPIC) (64%) and Austrian oil company OMV (36%).


By: Franco Capaldo
+44 (0)20 8652 3214



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