Austrian petrochemicals producer Borealis' profit hit a record in the first half of 2022, driven by wider European margins on olefins — ethylene and propylene — arising from a heavy cracker-maintenance season.
But its margins contracted on polyethylene (PE) and polypropylene (PP), a situation likely to continue in the second half of the year when gas supply shortages and economic headwinds make the outlook less rosy.
Borealis' second quarter profit was €571mn and was €1.10bn ($1.12bn) in the January-June period, a near-15pc increase from the same period of 2021.
"European indicator margins for olefins increased substantially, with more than €200/t additional [widening] seen in the second quarter, compared to the first quarter," Borealis chief executive Thomas Gangl told Argus. "The reason was very clear: strong demand combined with quite some supply issues — shortages due to cracker outages and logistical constraints — and despite the high [feedstock] naphtha prices, margins were very healthy."
Borealis' European indicator margins for ethylene and propylene in the first half were €546/t and €559/t respectively, up from €442/t and €407/t a year earlier. But its PE and PP margins fell sharply, as a supply crunch in Europe seen in most of 2021 was overcome by imports from the Middle East and the US, and domestic production rose. A softer demand environment towards the end of second quarter also had some adverse effects for polymer producers.
European PP homopolymer contract premiums over feedstock propylene averaged €581/t in the first half, compared with €798/t a year earlier, Argus calculations show. Contract margins for PE showed a similar pattern, with premiums for HDPE blow moulding and LDPE grades falling to €352/t and €828/t, from €670/t and €984/t respectively.
Borealis' PE and PP sales volumes fell marginally to 1.51mn t and 1.41mn t, mainly driven by decreases to European consumer products, automotive and infrastructure sectors, and partly offset by higher sales from joint ventures — particularly after the ramping-up of the new 480,000 t/yr PP5 plant at the Borouge 3 complex in Ruwais, UAE, and from increased sales from inventory.
Borealis' earnings were reported as part of OMV's second quarter results. Borealis represents around 90pc of OMV's Chemicals & Materials business segment. OMV has a 75pc shareholding in Borealis, with the remaining 25pc held by Abu Dhabi's sovereign wealth fund Mubadala.
Demand clouds
Looking into the second half of the year, Gangl said there will be "a huge challenge with all the costs and inflation, and the unstable situation regarding supply security on gas."
"The second half will look very different from the first half [of 2022], this is very clear," Gangl said. "Demand is declining in all segments of the economy and therefore we would also see the decline in the sales volumes and price levels for our business."
Still, Gangl expressed confidence in achieving "good results" for the full year. While Europe is faced with a cost-base disadvantage, Gangl said Borealis' joint ventures in the US and Middle East give it exposure to lower cost and very strong feedstock advantages.
"We also have a very strong position in terms of quality [of the PE and PP grades]," he said. "Our strategy is to increase the speciality product share — which is around 40pc at present — because the margins there are higher and not as much under pressure." Speciality grades are needed for high-end transformational applications such as electrical infrastructure and lightweight automobiles, along with critical healthcare applications such as insulin delivery.
"So we are well prepared for difficult times as well," Gangl said. "You cannot immediately say that if the market goes down by 5pc or 10pc, it will have the same impact on Borealis."
Bayport coming
Borealis began commercial operations on 21 July at a 1mn t/yr ethane-fed ethylene cracker in Port Arthur, Texas, part of its Bayport Polymer joint venture with TotalEnergies, and expects a new 625,000 t/yr PE unit — which will be fed by the cracker — to be fully operational by the fourth quarter. Construction of the PE plant "is 98pc completed and we are getting started with the commissioning of some parts of the unit," Gangl said.
The site already has a 400,000 t/yr HDPE unit.
In Europe, construction of a 740,000 t/yr propane dehydrogenation (PDH) project in Kallo, Belgium, has faced some setbacks after Borealis suspended a contractor. The plant was to start up in the third quarter of 2023, but Gangl could not give an updated timeline. Europe's largest propane tank, which will feed the new PDH unit, was commissioned in the first quarter of this year.
The prolonged shutdown of OMV's Schwechat refinery in Austria continues to affect Borealis' PE and PP production there. The refinery restart is now scheduled for the end of September or October. Borealis has been able to supplement supplies of polymer from its Stenungsund plants in Sweden, and weaker demand is also somewhat counterbalancing the effect of the outage.
Borealis has awarded all EPC contracts for the Borouge 4 expansion in UAE, which it plans to start up in 2025.
