INSIGHT: Borealis sharpens focus on Europe PE and adds fertilizers

16 August 2013 16:34  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--When European polyolefins markets are as bad as this you have to do something.

Polyethylene production has been reined back for months because of weak demand. High density polyethylene (HDPE) is said not to be as robust as low density PE (LDPE) and linear low density PE (LLDPE).

Polypropylene (PP) demand appears to be improving as growth gathers pace in the stronger eurozone economies. It is widely used in the automotive industry and in the household goods and packaging sectors and demand reflects industrial growth as well as consumer confidence.

Polyolefins price have been under pressure this year, particularly in the second quarter, although producers are aiming higher currently as they try to maintain margins against the backdrop of higher naphtha and olefins prices.

Producers are closing older or unwanted polymer capacities and have worked hard in recent quarters to cut costs, largely overheads in parts of the business that are not immediately related to production and sales.

But they realise that Europe’s polyolefins markets and European polyolefins profitability are not going to get much better anytime soon. Even when demand does return, the region will be challenged by the cost competitiveness enjoyed in ethylene by other parts of the world.

The second quarter was tough for polyolefins producers in Europe, Borealis showed on Friday. Its quarterly sales were up 6% year on year while net profit was 26% lower, due mainly to what it said were “soft market conditions for polyolefins in Europe”.

Net profit had improved from the first quarter of this year but this was down to good results from base chemicals and fertilizers, rather than improving polyolefins performance.

Borealis has decided to close an HDPE plant in Burghausen in Germany at the end of next year. This is one of four HPDE plants in Europe that producers have either closed since the end of 2012 or intend to close.

The capacities are shutting as new HDPE production comes onstream in the Middle East.

Those companies that can are focusing most of their attention on larger scale and lower cost capacities in the region and on their operations in North America where shale gas economics are changing the operating landscape.

Borealis does not have cracker or polyolefins operations in North America, although it does have a compounding facility. One of its co-owners, Abu Dhabi’s IPIC, also owns Canada’s Nova Chemicals, which is expanding its polyethylene production capacity based on shale gas economics.

The big, low-cost, gas-based polyolefins expansions for Borealis are being made in Abu Dhabi where its joint venture with Abu Dhabi national oil company (ADNOC), Borouge, is building Borouge 3.

The plants in this phase of the giant Borouge project in Ruwais will raise the venture’s olefins and polyolefins capacity 2m tonnes/year to 4.5m tonnes/year. They include a third ethane cracker, two additional Borealis Borstar technology PE plants, two additional Borstar PP plants and an LDPE unit. Bringing on an additional 2.5m tonnes of capacity will take much of next year.

But while it expands in Abu Dhabi, Borealis has to do something about Europe, where the prognosis is not good.

“We do not expect the European polyolefin markets to improve any time soon”, Borealis CEO, Mark Garrett, said on Friday. He also reiterated his deeper concerns about Europe’s economic potential and the regions’ competitiveness.

“We need to continue to strengthen our European position by taking the necessary decisions, like the closure of our HDPE plant in Burghausen at the end of 2014,” he said of the European polyolefins operations.

“We will continue our work to optimise our European Polyolefin business and assets in order to improve our profitability and grow in volatile markets.”

As profits for the second quarter showed, there is more money to be made today in base chemicals, and in the European fertilizer business, where the company has made a couple of acquisitions recently.

The fertilizer business, particularly, is operating to different and quite positive dynamics, compared to polyolefins.

Borealis bought France’s largest nitrogen fertilizer manufacturer, GPN, from energy major Total at the end of June. At the same time it acquired a majaority 56.86% stake in Belgium/Netherlands, mineral fertilizer producer Rosier, also from Total.

“We will continue to expand our fertilizer business creating a more diversified business portfolio and support the further growth and development of Borouge,” Garrett said.

The Borouge ethane crackers achieved record production levels in the second quarter, Borealis said. It also explained that the HDPE closure in Germany was being made because the plant is based on non-proprietary technology “and no longer provides a sufficient innovation platform or attractive economic return”.

The Austria-headquartered company added: “The closure will ensure Borealis maintains its competitive position in the currently weak European market. Many of the products and customers currently served will be transitioned to Borstar plants within the company.

The Borstar technology has helped drive the expansion of the Borealis polymer business for many years. In June the company said it would upgrade a PE plant in Porvoo in Finland to a new third generation of the technology giving it more polymer flexibility.

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By: Nigel Davis
+44 20 8652 3214



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