Borealis’ Borouge to tap into China transport, building demand - CEO

25 August 2016 13:09 Source:ICIS News

Mark Garrett - BorealisLONDON (ICIS)--China’s lower growth rates will not affect Borealis’ high grade polymers sales in the country as electrification in transport and the construction sector continue to expand, the CEO of Austrian polymers and fertilizers producer Borealis said this week.

“At [flagship Abu Dhabi site] Borouge, we are largely focused on grades like P100 for pipes, and the new high pressure plant in we also have the wires and cables [unit] and we expect to move more of that product into China, where demand for electricity is growing,” said Garrett.

“China is strong in electric vehicles as well due to pollution-related problems. We expect more transport-related sales [in wires and cables] to China.”

Mark Garrett said Borealis’ Borealis, with capacities to produce 4.5m tonnes/year of polymers and co-owned with the Abu Dhabi National Oil Company (ADNOC) has already started up all operations after the cross-linked polyethylene (XLPE) plant was opened in the second quarter, although the three-month period was badly affected by poor sales at fertilizers.

However, despite depressed demand and prices for fertilizers, Borealis’ CEO said Borouge is well placed to serve the Chinese market as well other emerging nations in Asia going through urbanisation processes.

Although Garrett would not disclose Borouge’s operating rates during the second quarter he said “when the feedstock is available the plants have proven they [can] run 4.5m [tonnes/year]” and added the ethane crackers are running at 100%.

The current distribution of sales coming out of Borouge stands at 30% directed to China, 30% to southeast Asia and an additional 30% to other parts of the Middle East, with only 10% of its sold to Europe.

While financial analysts have shown concerned about macroeconomic imbalances in China due to the high rates of private corporate debt acquired during the last decade, Mark Garrett agreed debt levels are “no doubt too high” but added Borealis does not buy into the “doom and gloom” about an imminent collapse in the major Asian economy.

"There is no doubt that China has had a more risk-orientated nature. They don’t mind taking out debt and trying to invest, but we don’t buy into the doom and gloom in China. It will stabilise at lower [annual GDP] growth, but whatever that will be at 5% or 6% [it is] still a big rate for a big economy,” said Garrett.

A large part of Borealis’ second-quarter 12% fall in sales and net profit came from its fertilizers division, as prices and demand continued to be subdued during the European key planting season.

The company’s CFO, Mark Tonkens, said fertilizers amount to between 15% and 20% of total sales, which in the second quarter stood at €1.79bn.

The CEO added: “In general [fertilizers were] not very good. Fertilizers is largely a demand-driven sector, influenced mainly by two aspects – the seasonal weather, which was not helpful during the second quarter, and farmers’ economics.

“Farmers are getting low pricing for the grains so their ability and willingness to invest further is limited.”

Global fertilizers prices have remained persistently low during the last 12 months and although Borealis said they have probably already bottomed out, the recovery will be slow and gradual.

Interview article by Jonathan Lopez

By Jonathan Lopez