Weaker polyolefins margins expected in H1 but outlook remains positive – Borealis CEO

LONDON (ICIS)–Borealis is anticipating weaker polyolefins margin developments over the first half of 2023, compared to the same period a year prior, but executives at the petrochemicals arm of Austria’s energy major OMV remain confident in the company’s outlook.

While the market remains characterised by inflationary pressures and muted expectations for demand growth, in a continuation of poor sentiment carried over from the fourth quarter 2022, this is only a part of the picture.

“Looking at 2022, you need to look at the development over the year. We had fantastic margins in the first half, but I don’t expect that to happen again soon,” said Borealis’ CEO, Thomas Gangl.

“We are in a cyclical business and were expecting the downturn earlier. What is surprising to me is that it is less deep and less long than we previously thought it would be. It is reasonable for this business, maybe even more positive than we had thought.”

The company’s CFO, Mark Tonkens, added: “Year on year, we will not see any improvement. From the fourth quarter, we expect the first quarter to be in the same type of position, maybe an improvement in volumes, but later in the year we are more optimistic and there are some signals that volumes should be better.”

Another factor which could disrupt progress in 2023 is capacity utilisation, with turnarounds planned at Schwechat, Austria in the second quarter and Porvoo, Finland in the third quarter.

POLYOLEFINS PERFORMANCE
The polyolefins business had made some recovery compared to the third quarter on the back of higher volumes, which was benefitted inventories despite pressure from a decline in feedstock discounts.

Tonkens stated that the growth in volumes was testimony to Borealis’ strategy of focussing on specialty polymers for applications in the automotive, energy, and health sectors which had a more robust demand-base.

Consumer packaging demand for both rigid and flexible materials tracked a steeper decline, due to the utilisation of assets.

Margins will remain under pressure in the current environment, but Borealis hopes to combat this with increased sales volumes compared to 2022, with exclusion from its joint venture activities.

WIDER PERSPECTIVE
Overall, net profits fell despite a sales volumes increase from its Borouge facility in Abu Dhabi, established as a joint venture with state-owned oil major ADNOC.

In its US joint venture with TotalEnergies, Baystar in Texas, Borealis experienced the full depreciation charge of the cracker, but operational disruptions including the bad weather in the region presented some challenges.

As part of its strategy, the executives said sustainability remains a key feature for Borealis, with a range of targets including a reducing CO2 emissions, increasing renewable energy consumption, and raising its circular polymer and chemicals production to 600,000 tonnes/year by 2025, increasing to 1.8m tonnes/year in 2030.

“Compared to two years ago, when we were thinking of 2025 and 2030, it was a number out there. Now we have a truly have very granular plans per year on how to get there,” said the CFO.

“There is a clear split between organic and inorganic growth…There is a clear roadmap in what we want to achieve in mechanical and chemical recycling and also the bio-feedstock based products, what is needed on acquisition side and the pipeline for that is prepared,” added the CEO.

“We have decided to focus on the transformation in the polyolefin business, but what we see is that there are no big signals you can make. You need to make smaller steps to get there, and it needs the full range of options. It is quite different if you go for renewable feedstock and use your existing units, compared to if you must build a new unit for chemical recycling,” added Gangl.

While some regulatory frameworks are complementary to Borealis’ strategy, others such as the European Chemicals Agency (ECHA)’s decision to classify melamine as a substance of very high concern (SVHC) could affect some of its current operations.

Changes in EU legislation will likely take considerable time to come into effect, and Borealis may have stopped melamine production when any change in regulations apply.

Gangl was critical of heavy bureaucracy impacting EU competitiveness and production, if this then meant having to import materials from other regions.

“In general, it is a topic in Europe that we must be careful what we do with legislation, limiting or eliminating industry with the decisions that we are taking, and closing competitiveness in Europe.  We cannot afford to de-industrialisation in Europe, as that doesn’t help anyone,” said Gangl.

“I am rather critical on these topics and decoupling totally from global view on that as we will not be able to keep this level of lifestyle in Europe if we are just pushing everything outward which is not perfect in all dimensions.”

Borealis has taken note of the Member State Committee’s decision and is now defining the next steps to follow up on this, while continuing to work with the relevant authorities on the matter.

“We support the position of the European Melamine Producer’s Association (EMPA) and are indeed disappointed about this nomination,” Borealis said in an official statement on the matter.

The EMPA has called for a continued dialogue with the authorities and will continue to engage in upcoming regulatory steps for a collaborative and balanced regulation of melamine.

Front page picture: Borealis’ production facilities in Linz, Austria
Source: Borealis 

Interview article by Morgan Condon