Borealis' second-quarter profits surged to a record high as margins on polyethylene and polypropylene continued widening from the previous quarter.
Borealis made an operating profit of €566mn ($670mn) in the second quarter of this year, an increase of 44pc from the €394mn profit it made in the first quarter.
This put Borealis' first-half profits at €960mn, which is more than three times higher than the full year profit of €300mn made in 2020. Borealis' results were fully consolidated and reported as part of OMV's second quarter results. OMV has a 75pc shareholding in Borealis, with the remaining 25pc being held by Abu Dhabi's sovereign wealth fund Mubadala.
"Packaging demand is extremely strong, while we have also seen growth in demand from the specialities segment" Borealis chief executive officer Thomas Gangl told Argus.
European PE and PP producers' margins hitting fresh highs in this period was a major factor in delivering the unprecedented results for Borealis. European PP homopolymer contract premiums over feedstock propylene averaged €955/t in the second quarter, compared with €552/t in the first quarter, according to Argus. Contract margins for PE also painted a similar picture in this period, with premiums for HDPE blow moulding and LDPE grades rising to €835/t and €1,225/t, from €505/t and €743/t, respectively.
While the outlook remains strong, these levels were likely unsustainable amid higher feedstock costs and as polymer prices face downwards adjustments in the western hemisphere as supply constraints gradually ease and new global capacities come online later this year. PE and PP margins in Europe have already seen some contraction at the tail-end of the second quarter and so far in July, albeit margins remain well above their historical averages.
"It is clear that margins will reduce a bit" but demand is expected to remain strong and will continue to support fundamentals, Gangl said on the outlook for the third quarter. The PE and PP supply side in Europe will remain constrained by bottlenecks in the containers shipping sector — which are not expected to be resolved this year — and the record high freight rates on imports from Asia that had become "unaffordable" for polymers market participants, Gangl said.
Commenting on the timelines of Borealis' own capacity expansions, Gangl said the ethane-based cracker in Bayport, Texas, was in start-up phase and was expected to produce on-spec material soon, while the PE unit there was expected to begin commissioning in early-2022. The PP5 polypropylene plant at Borouge 3 complex in Ruwais, UAE, was on track to start-up in the third quarter of 2021. Borealis also continued to make progress with the construction of its new 740,000 t/yr PDH unit in Kallo, Belgium, and expects it to become operational by 2023, with work currently ongoing there on pre-fabrication of pipelines, Gangl added.
Commenting on Borealis' acquisition of a 10pc stake in Belgium-based recycler Renasci, Gangl said it was a strategic decision and it gave Borealis the technology to scale-up its mechanical and chemical recycling initiatives. In June, it signed an agreement to offtake the entire annual renewable feedstock production of Renasci, totalling 20,000 t/yr. Borealis will process the bio-feedstock supplied by Renasci at its Porvoo cracker in Finland, to produce its circular polymers range that it markets as Borcycle C.
Chemical recycling remains at an early stage for now and more progress was needed for the development of various technologies, including OMVs ReOil technology, which is being piloted at its Schwechat refinery. OMV and Borealis plan to prove the technology at higher throughputs by 2025, before targeting a commercial scale unit with output of around 200,000 t/yr of pyrolysis oil by 2030.
