PE, PP margins support record 2021 profits at Borealis

Austrian olefins and polyolefins producer Borealis' 2021 profits surged to a record high as margins on polyethylene (PE) and polypropylene (PP) widened despite A dip in the fourth quarter.

Borealis made an operating profit of €1.97bn ($2.25bn), more than a six-fold increase of from €300mn in 2020.

"We saw exceptional margins during the year especially as logistics costs [and bottlenecks] drove the prices in Europe up quite a lot," Borealis chief executive officer Thomas Gangl told Argus. "This combined with the high demand, especially from some areas — like packaging, hygiene, and medical sectors — that created a very good environment for us, and we have been running our units as hard as possible."

European PE and PP producers' margins hit new highs last year, which was a major factor in Borealis' profits surge. European PP homopolymer contract premiums over feedstock propylene averaged €813/t in 2021, compared with €427/t in the previous year, according to Argus. Contract margins for PE painted a similar picture, with premiums for HDPE blow moulding and LDPE grades rising to €568/t and €1,021/t from €263/t and €395/t, respectively.

But Borealis' fourth quarter profit of €475mn marked a modest decrease from €537mn in the prior quarter, because of rising costs and some seasonal slowdown in demand that is typical for the time of year.

Borealis' results were fully consolidated and reported as part of OMV's fourth quarter. OMV has a 75pc shareholding in Borealis, with the remaining 25pc held by Abu Dhabi's sovereign wealth fund Mubadala.

2022 outlook

A pricing disconnect persists on PE and PP between Europe and Asia-Pacific particularly and has kept import economics wide open on paper. But bottlenecks continue to constrain available shipping capacity and the workability of these arbitrages. These shipping bottlenecks have kept polymer freight between the regions elevated, with Freightos-derived spot rates on the Shanghai-Antwerp and Busan-Antwerp lanes last assessed by Argus at $613-620/t and $625-629/t, respectively.

"There are some prognoses that the logistical issues might be resolved or turn into a different level in the second part of the year," Gangl said. "Let's see how this develops, but for the time being, we see a very good and stable business demand [outlook]," also referring to the gradual easing of Covid-19 restrictions in various countries.

"What also helps is that we [Borealis] are in so many different segments, so there are some challenges in in the automotive segment, but [demand from] the packaging segment is very good," he said. "There are challenges maybe then in the energy business but at the same time [demand from] medical applications are very good."

Borealis remains cautious of the macroeconomic environment and how this might affect the future consumption environment, but it does not anticipate any major effects from such developments this year.

"In the longer term, if inflation sustains, interest rates would start to go up and then you could expect slowdown in spending," Borealis chief financial officer Mark Tonkens said. "And not only on part of consumers, but also from governments as all countries have spent quite some money over the last years" to support their economies.

"But [the borrowed stimulus money] has to be paid back at a certain moment, so we are watching that for sure, Tonkens said. "But so far let's say for horizon 2022, we don't see any serious impact from that. I think that's how we should do it."

Project updates

Borealis said the start-up have been delayed of its joint venture cracker and PE units in Port Arthur, Texas. It now expects the 1mn t/yr ethane-fed ethylene cracker and the 625,000 t/yr PE unit, which would be fed by the cracker, to start this year, with the cracker first, possibly around the middle of the year. The cracker started testing in August 2021 and was to be fully online before the end of that year, with the PE unit previously expected to be online in early 2022.

The cracker and PE unit are being built and operated by Baystar, a joint venture between Borealis and TotalEnergies.

Commissioning is ongoing at Borealis' 480,000 t/yr PP5 plant at Borouge 3 complex in Ruwais, UAE, with on-spec production expected within "days or weeks". Tonkens said Borealis had prepared the market to absorb output and is completing the "final tweaks, keeping safety at the forefront."

In Europe, the firm's new 740,000 t/yr PDH project in Kallo, Belgium, is progressing with start-up now expected in the third quarter of 2023. Europe's largest propane tank, which will feed the new PDH unit, is close to commissioning and will be available soon for market activity ahead of the PDH unit start up.

All EPC contracts have been awarded for the Borouge 4 expansion, which was given a final investment decision in November 2021, and early site works have started, with planned start-up in 2025.

By Sam Hashmi and Alex Sands