Borealis’ ferts operations continue to suffer, Borouge booming – CFO

Jonathan Lopez

22-Nov-2016

Interview article by Jonathan Lopez

Fertilizers Low fertilizers prices affected Borealis’ third-quarter sales
Pictured, a Chinese worker adjusts fertilizers packages.
Source:
VIEW CHINA PHOTO/REX/Shutterstock

LONDON (ICIS)–Historic low fertilizers prices continued to bite into Borealis’s sales in the third quarter, although this was offset by its co-owned 4.5m tonnes/year Borouge polymers complex in the Middle East running at full capacity, the CFO of the Austrian chemical major said on Tuesday.

Mark Tonkens said these two factors helped to explain the fall of 6.3% in sales during the third quarter year on year and the 18% increase in net profit, which Borealis made public earlier in the day.  

While the poor performance at Borealis’s fertilizers operations was a constant during this year’s first and second quarters, Tonkens said the company is committed to fertilizers as a market with potential.

“We are confident fertilizers is a good industry to be in: people will keep eating and you need fertilizers to produce enough crops,” he said, adding although Borealis’s pricing power in the industry had been as weak as most producers’, sales volumes had actually grown, year on year, during the July-September quarter.

“Weak demand [from farmers] continues affecting prices, which together with rising natural gas prices [a key feedstock for fertilizers production] has made operations difficult. The market is poor and as an industry they have not been able to get higher product prices,” said Tonkens.

“Farmers have not experienced a good season – wheat prices have not been high and that moves up in the chain towards us. Equally, there is a possibility for farmers to be less generous [applying fertilizers] and they can even skip some of them, like NPK [nitrogen, phosphorous and potassium] and still have a good harvest.”

Persistent difficult operations at its fertilizers division, however, would never cause Borealis to even think about a divestment.

Mark Tonkens“For sure, it is not on our mind,” said Tonkens, pictured on the right.

Borealis’s ailing operations, however, can be compensated by the chemical major’s operations in polyolefins, with Borouge’s start-up completed and running at full capacity, as the firm’s CEO Mark Garrett said in October.

The polymers production complex is a 50:50 joint venture between Borealis and Abu Dhabi National Oil Company (ADNOC). Borealis, at the same time, is privately owned by Abu Dhabi’s International Petroleum Investment Company (IPIC), with a 64% stake, and Austrian energy major OMV (36%).

According to the CFO, polyolefins sales volumes increased in the third quarter, year on year, helping at the same time to boost profit margins, with the 4.5m tonnes/capacity complex selling its volumes mostly to the Middle East, China and Rest of Asia.

“Each of them takes around a third [of sales coming out of Borouge]. Despite talk of a slowing economy in China, GDP growth of 6% or 7% still represents a massive capacity requirement every year. Equally, in the Middle East, in places like Dubai, you still see cranes and construction everywhere – there is a lot of activity going on,” said Tonkens.

He dismissed markets sources’ suggestions the output of the large-scale capacity additions by Borealis is being sold through an aggressive price policy to outmatch competitors, and argued the company had been preparing the markets during the last two years for the ramp-up at Borouge.

“By preparing our customer base, we have been able to push the volumes [from Borouge] into the market. We haven’t seen aggressive pricing – we don’t want to push prices down and it is not needed,” he said.

Tonkens was not too concerned about the nine-month delay ethane suppliers from the US are being subject to as a consequence of technical problems at the Marcus Hook terminal on Pennsylvania’s Delaware River, and said the ship the company had prepared for such deliveries has been used in the meantime “in the best possible way” by transporting other liquefied gases such as propane.

“Some of our competitors have been facing that same tape of delay from the same terminal. There has been a technical problem, which is, I think, related to getting the pipeline for additional capacity installed,” he said.

“Our supplier is doing its best [to fix problems], but in the meantime we are trying to utilise our ship in the best possible way, and that is working satisfactorily. When crude oil is at the range of $40/bbl to $50/bbl, the delta between naphtha and ethane is reduced.

“If crude oil was at $100/bbl, the ethane advantage would be much bigger. Whatever the case, we are fully ready on our end [to receive the ethane shipments], we just need to be patient.”

Deliveries of ethane from the US may be a constant in coming decades. The country’s President-elect, Donald Trump, promised on Monday evening he would promote the extraction of fossil fuels – including “clean coal” – in order to create jobs. During the same online address, he promised to withdraw from the Trans-Pacific Partnership (TPP) trade deal on his first day in office, in January 2017.

Tonkens would not say what the implications of a more protectionist policy from the US – overturning its commerce policy since the 1940s – could be for the world economy, although he said Trump seems “to be firm” on certain promises, such as ditching TPP.

“We are watching [US developments] closely. The rhetoric of an election campaign is normally softened afterwards, although on TTP he seems firm. Let’s see where it goes. He is a businessman, so he will try to boost the economy and the industry,” said Tonkens.

“We’ll need to see how that will pan out globally. I think free trade is the best thing to get the best performance, so I am not sure if pulling out from trade agreements is good or not. If there are [business] opportunities, we’ll step into those when they arrive. But for now, we’ll need to watch developments.”

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