Borealis presses on with large projects, US Gulf capacities may be revised – CEO

LONDON (ICIS)–Borealis’ cost cutting programme will not affect its large projects in development in Europe, the Middle East, and North America, but capacities for the Gulf Coast polyolefins project may be revised in view of the current economic slump, according to the CEO at the Austrian polymers and fertilizers major.

Borealis first-quarter financial metrics published earlier this week showed the company had already suffered from the slowdown in Asia due to the coronavirus pandemic, when the region was its epicentre.

Borealis’ flagship site of Borouge, in Abu Dhabi, has Asia – China especially – as its main export destination; the joint venture is 40% owned by Borealis and 60% owned by ADNOC, the local crude oil major. It has the capacity to produce 4.5m tonnes/year of different grades of polymers.

As coronavirus moved to Europe in March, sharply denting economic activity into the second quarter, Borealis’ CEO Alfred Stern said the coming months will be very difficult, adding the recession will leave long-lasting scars in the European economy, with employment set to suffer greatly.

Borealis’ CFO Mark Tonkens, also at the interview, said savings are expected at €100m this year, but ruled out redundancies among the firm’s 6,900 employees – savings will come from a 25% reduction in capital expenditure (capex) and tightened variable costs.

“We have a strong balance sheet and a strong focus on cash flow … We are not dismissing employees and there is no structural programme related to that, but we are freezing hiring, expect for some exceptional circumstances,” said Tonkens.

“These measures, combined with working capital, should ensure financial stability. Our 2020-2022 spending programme contemplated heavy investments and all those are going ahead as planned.”

PROJECTS ON, CAPACITIES MAY CHANGE
Apart from expansions at Borouge, the company is also developing a propane dehydrogenation (PDH) plant in Belgium, expected to start up in 2022 and with a production capacity for propylene of 750,000 tonnes/year.

In North America, the company is building in Texas a joint venture with France’s major Total, called Baystar; it will have a production capacity for polyethylene (PE) of 625,000 tonnes/year and is expected to start up in 2021.

The project was aiming to tap into the feedstock cost advantage brought about by the shale gas boom in North America; however, crude oil prices are low and gas-based ethane petrochemicals production has now lost some of its shine.

“Feedstock availability is a key driver for our business, but our main drive in the US was to introduce our Borstar technology in that country, in order to supply globally,” said Stern.

Borstar is Borealis’ proprietary technology for  production of polyethylene (PE) and polypropylene (PP).

“That will continue to be true and we want to continue pursuing that programme, although we will need to see if any capacity adjustments need to be made; for now, the plan remains unchanged.”

The revision in capacities may be necessary if the consequences of the 2020 pandemic are long lasting in western economies, which are set to take longer to recover than that of China or other Asian countries after the coronavirus crisis.

While lockdowns implemented in March and April were relatively quick processes, reopening the economies will be more painful, said Stern, and the effects of this year’s recession will be felt for years to come.

“I don’t think this crisis will be over at once, with everything starting to run just like before. An economy is a huge machine, and we are seeing tremendous numbers in unemployment in Europe, or short-term work schemes being implemented,” said Stern.

“We have to take into account the negative effects of this crisis taking a long time to recover.”

EU PANDEMIC RESPONSE
Alfred Stern, unlike his predecessor Mark Garret, does not usually speak on the record about his opinions on institutional EU affairs, that Garrett used to lambast at any opportunity due to what he saw as a bloc with a disparity of interests, making innovation and entrepreneurship stiff.

But the EU’s initial response to the pandemic, with borders across the bloc closing, causing havoc in logistics, affected Borealis’ activities and Stern said there should have been more unity among the 27 EU members in the decision-taking processes.

“We struggled with logistics in border crossings, and we had issues to bring some of our strategic products to our customers,” he said.

“It was difficult to manage different requirements in different counties [within the EU] … The situation has since improved and those problems have now mostly dissipated.”

At the end of March, the European Commission launched the Green Lanes initiative establishing border crossings within the EU; crossing should open to all freight vehicles, whatever goods they are carrying, with the crossing not taking more than 15 minutes, including any checks and health screening.

FARMERS KEEP SPIRITS UP
Borealis’ fertilizers division, which accounts for around 20% of sales, has turned into the bright spot within the company, as global prices recovered and feedstock costs – mostly natural gas – fell.

The divestment of the division, according to management, is not the priority at the moment, although the CFO insisted consolidation within the industry is likely to happen.

Borealis’ piece of the cake would certainly be attractive to other European fertilizers majors.

The company said the division had made a profit of €77m in the fourth quarter of 2019; for the first quarter of 2020, however, it did not disclose that metric.

Borealis is privately-owned and has not obligation to report financials like stock-listed corporates; the company is owned by Austria’s energy major OMV and Abu Dhabi’s investment fund Mubadala.

In March, OMV upped its stake from 36% to 75% in a $4.68bn deal with Mubadala, the former majority owner which still holds 25% of the capital structure.

“2020 is set to be a good year for the [fertilizers] industry, and we want to make sure we improve performance in that division and, in due course, seek further opportunities like partnering with another player,” said Tonkens.

“We won’t disclose [net profit] figure but it was up from the first quarter of 2019, which had already been a good quarter. Sales volumes were up by a single digit.”

Front page picture: The Borouge petrochemicals complex in Abu Dhabi
Source: Borealis

Interview article by Jonathan Lopez