China’s polyolefins prices starting to pick up, but uncertainty remains - Borealis

Source: ICIS News

2019/05/06

LONDON (ICIS)--Polyolefins prices in China have shown some signs of recovery over the past few weeks but “it is too early to tell” if the trend will endure in light of persistent economic uncertainty, the CEO and CFO at Borealis said on Monday.

Residential buildings under construction in Rizhao, China. The sector is recovering, said Borealis. Source: Imagine China/REX/Shutterstock

The fall in polyolefins prices in China was one of the reasons the Austrian polymers and fertilizers major argued was behind the sharp fall in net profit during the first quarter, down nearly 17% year on year.

The company’s CEO Alfred Stern said the financial metrics for the first quarter were still “a good result” which was compounded by the fertilizers business – after several years in the doldrums, that division posted a net profit in January-March.

Financial metrics coming out of China recently have been disparate, but Stern said that key end markets for Borealis in the country, like construction or healthcare are showing signs of a recovery. Automobiles, however, remains weak.

The trade war caused by the US imposition of tariffs on Chinese products was also on course to be resolved, according to hopeful chemicals executives in the US, but the situation turned troublesome again over the past weekend.

On Sunday, a statement by US president Donald Trump threatening to hike already-in-place tariffs on Chinese products rattled investors. Stock markets suffered heavy losses in Asia, followed by European bourses later on Monday.

Source: Borealis

“We are seeing some signs of improvement in China’s polyolefins prices, but it is too early to tell [whether the trend will persist]. We don’t know what impact the message by the US [on Sunday] will have,” said CFO Mark Tonkens, pictured.

“Market indicators are not all positive but within that context we feel we did well.”

The CEO wanted to see the glass half full, but in light of events over the weekend he preferred to remain cautious.

“I do believe that eventually a solution will be found. However, the main question is how long the discussions will go for and therefore how long uncertainty will prevail,” said Stern.

Apart from weaker Asian pricing, the fall in net profit during January-March was also due to weaker polyolefins margins in Europe as they came off the stellar performance posted during the same quarter a year ago.

Source: Borealis

“In the context of the market, a net profit of €200m is a good result,” said Stern, pictured. Net profit in the first quarter of 2018 stood at €240m.

A turnaround at Borouge, the joint venture Borealis has in Abu Dhabi’s with the emirate’s crude oil major ADNOC, also contributed to lower profits during the first quarter.

The enterprise is owned 40% by Borealis and 60% by ADNOC.

FERTILIZERS TURNS A CORNER
Borealis‘ fertilizers division posted a positive performance in the first quarter, and did actually post a profit after years struggling.

However, figures are not forthcoming. Borealis is privately-owned and it is not required to report its financial metrics like listed corporates.

Borealis is owned by the UAE’s sovereign wealth fund Mubadala (with a 64% stake) and by Austria’s energy major OMV, with the remaining 36%.

The company carved out its fertilizers division in 2018. Its CEO said to ICIS at the time the aim was to “recalibrate” the strategy for the division in order to turn it around.

On Monday, the CEO said that, together with global fertilizers prices improving, the company had benefitted from its overhauls at the several fertilizers assets it acquired earlier in the decade, which had improved their profitability.

Interview article by Jonathan Lopez