LONDON (ICIS)--Economic output pre-pandemic levels are likely to be recovered globally only “beyond 2021” and polyolefins low prices could remain for the foreseeable and put a strain on producers, the CEO at Austrian polymers and fertilizers major Borealis said to ICIS.
Borealis presented earlier on Thursday its second-quarter results, with sales lower than the second quarter of 2019, and net profit falling 80%.
Despite this, company chief Alfred Stern said the producer was able to manage several storms at once: pandemic-induced lockdowns, a fire at its Stenungsund, Sweden, cracker in May and inventory charges close to €100m as a consequence of the crude oil price fall.
V-SHAPED RECOVERY NOT
Despite growing signs that a V-shaped recovery is not taking place, the talk about a quick rebound continues to puzzle analysts and economists alike.
Last week, the CEO of Germany’s chemicals major BASF said China was the “only country” showing signs of a such a rebound.
Stern would not go that far, however. China is a big market for the company as urbanisation keeps feeding interest for polyolefins coming out of its Borouge joint venture in Abu Dhabi; the V-shaped recovery, he said, is not taking place in China or anywhere else in the world.
“What we are seeing, and it’s very similar to the general industry view, is that April was the low point: we saw a decrease in demand for our products of 60-70%; in May and June many segments downstream did start to recover,” he said.
“However, it will take some time until we get back to 2019 levels – probably beyond 2021.”
Borealis holds a 40% stake at the Borouge joint venture in Abu Dhabi, with capacity to produce 4.5m tonnes/year of different polyolefins grades; local oil major ADNOC holds the remaining 60% stake.
Borealis is privately owned by Abu Dhabi’s investment fund Mubadala (64% stake) and Austria’s energy major OMV with the remaining 36%, OMV is to become the majority shareholder by year end (75%).
TOUGH SECOND QUARTER
Together with the “close to three-digit figure” impairment charges accounted for in the second quarter, related to the fall in crude oil prices in the assets linked to that commodity, Borealis had to deal with a force majeure at its Stenungsund cracker.
Borealis declared force majeure in mid-May at its Stenungsund cracker after a fire; the facility has production capacities for ethylene (625,000 tonnes/year), propylene (200,000 tonnes/year) and low density polyethylene (LDPE, 350,000 tonnes/year).
Those polyolefins have performed well year to date, compared to sharp downturns in other petrochemicals, as packaging and health-related products boomed due to the pandemic.
Borealis’ CFO, Mark Tonkens, said that supply to customers did not get cut off after the force majeure, but the company had to source material elsewhere to meet its obligations.
“We lost ethylene output but managed to keep the plants running, continuing with ethylene supply from other sources. We didn’t have to disappoint our polyolefins customers, and the insurance policy will cover cracker losses,” said Tonkens.
“We lost our light feedstock cost advantage and, with the fall in crude oil and naphtha, we made an impairment charge of close to the three-digit figure [in million]. The feedstock cost advantage is returning, and we already saw an improvement by the end of the second quarter.”
Tonkens added that the hit to the second-quarter net profit had also come from still-depressed prices for polyolefins in Asia in what has become “a difficult market” after the pandemic started and also due to global capacity additions.
He said sales volumes had increased, both from Borouge and at European facilities, but lower pricing had reduced sharply margins.
EU GREEN DEAL GOOD; US NO
Stern was also asked about the US’ economy and how the forecast for a rebound in the third quarter is starting to evaporate as high infection rates could require further lockdown-like measures to contain the spread of the virus.
Stern did not answer the question, apart from saying Borealis’ priority is to keep its US employees safe.
Unlike his predecessor Mark Garrett, Stern will not easily engage in commentary about global or regional politics, and lobbies in a more tempered manner about regulatory burdens in the EU than Garrett, who even questioned the EU itself in its current form.
Stern did praise, however, the EU’s Green Deal, a new plan by the 27-country bloc to sharply reduce carbon dioxide (CO2) emissions and push for a circular economy.
The EU approved in July a €750bn Pandemic Recovery Fund which will be linked to the Green Deal – countries receiving financial support will have to spend the money in green economy-related investment plans.
“It is important we move forward with the circular economy, now even more than before the pandemic, and this will not happen without good policy environment,” said Stern.
“From that perspective, the EU has a great opportunity to take advantage of that: both on circular economy and on sustainability.”
Front page picture: Borealis' joint venture
Borouge facilities in Abu Dhabi
Interview article by Jonathan Lopez