Borealis to keep fertilizers operations as restructure ongoing - CEO

Author: Jonathan Lopez


LONDON (ICIS)--Borealis is to retain its fertilizers operations for the moment as the division turns profitable, with the Austrian polymers and fertilizers major putting on hold its plans to find a partner, according to its CEO.

Company chief Alfred Stern would not answer questions about whether the company is looking for a buyer, instead of a partner, given that in his own view the European fertilizers industry needs to go through a process of consolidation.

The performance of the fertilizers and melamine division was one of the positive surprises in Borealis’ annual results, which suffered the drag from lower polyolefins margins due to oversupply, as well as the global economic downturn.

The division turned from “three-digit losses” in 2018 to a net profit of €77m in 2019, Borealis said.

Fertilizer and melamine were carved out Borealis as a entity in 2018 after years of losses. The company’s line at the time was it was seeking for a partner for the division, but that stance has been parked aside for the moment, said Borealis’ CFO, also present at the interview.

“The step [from losses to profit] is a very big step. We achieved this through hard work – we have been investing over the years intensively in different sites to bring them to better standards. We have had difficult years when things didn’t go according to plan, but in 2019 that changed,” said Tonkens.

“We ran our plants in a more efficient manner – some operations are still not perfect but they have improved markedly. This shows the value of the restructuring programme we put in place: we decided to create an entity more focused on fertilizers and melamine, and it has paid off.”

Potential buyers for Borealis’ fertilizers operations could be Norway’s Yara and Netherlands’ OCI, the two largest European producers in the sector.

On 27 February, when this interview took place in Vienna after Borealis had released it’s Q4 and full-year financial results, Swiss investment bank published in investment note on OCI and its potential divestment of methanol operations.

The Dutch firm, said the bank, could cash in around $2.5bn for the division, potentially giving the firm the proceeds to potentially acquire some assets.

“Maybe we are [looking for a buyer], maybe we are not,” said Borealis' CEO.

“As the saying goes, the harder people work, the luckier they become. Improving production reliability and rates, together with cheaper feedstocks [as natural gases stayed low throughout 2019], we were able to actually sell the product to improving markets,” said Stern.

Stern said long-term consolidation was necessary within the fertilizers industry and Borealis could “benefit from becoming bigger” but that decision would be taken when it makes sense.

“We decided now is not the time, and we are focused on running the business,” he said.

Fertilizers accounts for around 20% of Borealis’ sales. In 2019, the producer had sales of €8.1bn, down nearly 3% year on year, with net profit falling nearly 4% to €872m.

Borealis is privately-owned, with Austria’s energy major OMV holding a 36% stake and Abu Dhabi’s investment fund Mubadala holding the remaining 64%.

2020 set to a difficult start as the coronavirus crisis disrupted manufacturing in China during the first quarter, with the effects in global supply chains yet to be fully felt, and crude oil key producers Saudi Arabia and Russia engaged in a price war that caused stock markets to suffer their biggest fall since 2008 on 9 March.

Borealis said however that sales and deliveries from its joint venture Borough in Abu Dhabi had not suffered any disruption up to the end of February.

Borealis holds a 40% stake at the joint venture, with capacity to produce 4.5m tonnes/year of different polyolefins grades, with Abu Dhabi’s crude oil major holding the remaining 60%.

Borouge has always had Asia as its main export destination to sell product to, with China accounting around a third of the total, according to the CEO.

“[In China] We haven’t seen supply chain interruptions at this point. Polyolefins prices in China have already been low for a few months, but I wouldn’t speculate about where things are going to go in 2020,” said Stern.

Even before the sharp industrial downturn in the first quarter in China, the largest consumer of polyolefins in the world, prices for the polyolefins-based materials like polyethylene (PE) and polypropylene (PP) were already suffering on the back of ample supply and diminishing demand.

Large polyolefins capacities in the US, Asia, and the Middle East have come on stream in the past two years, or will do so in the coming quarters.

“Polyolefins prices are likely to stay depressed and we’ll continue to a lot of [competitive] pressure in the market,” said Stern.

“There is a risk this [coronavirus crisis] could spread further, and it could affect other economies. We have already seen the impact on Italy or South Korea. If the crisis goes to the extent we have been in China, it will clearly have an economic impact,” he added.

Interview article by Jonathan Lopez


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