Borealis: resilient in a challenging environment

In its biannual business update for the full year of 2022, Borealis looked back at a year that was anything but easy. Nonetheless, Thomas Gangl, CEO at Borealis, was not unhappy with the - as he described them -  very positive financial results. “We achieved a record net profit of 2.1 billion,” he said. Looking ahead, he was optimistic, predicting that, although again, it might not be clear sailing, the second half of the year is likely to see an improvement.

“More and more people are now very positive about the development,” he told Sustainable Plastics. But, he warned, realistically speaking, there will be only ‘a moderate global GDP growth’  - and inflation continues to be too high. Commodity prices are coming down from the previous year’s all-time highs, which indicates that the situation is starting to normalise.

For Borealis, the year 2022 was marked by a number of highlights, said Gangl. He pointed to the successful listing of Borouge on the Abu Dhabi Securities Exchange, raising gross proceeds of over €2.0 billion, making it the largest ever listing on the ADX.

The K fair saw the launch of the company’s first polypropylene grades based on its Borstar Nextension Technology; a technology that enhances the performance of PP, enabling this to be tailored to specific applications, and facilitates recyclability and eco-efficiency via downgauging. The circular solutions from the Bornewables and Borcycle C and M portfolios were also well received said Gangl. “Also, I think we can be very proud of our decarbonisation achievements  with regard to our scope 2 emissions. We have now reached nearly 30% of green power in our portfolio , up from zero percent in 2019. Our target is 40% until 2025. So, the team is working hard to achieve that.”

Borealis also increased its stake in the Belgian recycler, Renasci, and now holds a majority interest in the company. The acquisition will both provide the company with a  long-term supply of chemically recycled feedstock from Renasci’s Ostend facility as well as give it access to key circular technologies.

All in all, in an environment characterised by uncertainties and market volatilities, with the impact of the pandemic still felt in some regions, inflation and geopolitical tensions, the fact that Borealis was able to deliver a record net profit ‘is great’, said Gangl.

That said, looking at the actual figures for 2022, huge swings can be seen between the quarters.

A stronger result contribution from OMV base chemicals was more than offset by negative inventory valuation effects of around 100 million euros in the nitrogen and polyolefins business in the fourth quarter of 2022,  which weighed on the result. The contribution of Borealis excluding the joint ventures fell by €360m to -€23m, compared to €337m in the fourth quarter of 2021, due to lower polyolefin indicator margins compared to the strong levels of the final quarter of the previous year, and lower polyolefin sales volumes in Europe. The polyethylene indicator margin declined by 19 percent, while the polypropylene indicator margin plunged by 42 percent. The ethylene indicator margin improved by 7 percent, supported by reduced supply. The propylene indicator margin decreased 12 percent due to increased supply as a result of high refining runs.

The contribution from the polyolefin business saw a significant decline, impacted by the large negative inventory effects, and a drop in margins and sales volumes. Sales volumes decreased by 11 percent due to a slump in demand, with a more pronounced decrease in polypropylene as it has a greater exposure to the more cyclical durable goods. The decline was seen in the Consumer Products and Infrastructure segments, while the volumes in Mobility and Energy marginally increased.
The performance of the JVs decreased by 119 million euros driven by a negative contribution from the Baystar JV and a lower contribution from Borouge.  compared to the prior-year quarter. Borouge results declined significantly, driven by industry-wide pricing pressure and a lower share of OMV following the listing of the company in June 2022.
The utilisation rate of the European steam crackers operated by OMV and Borealis decreased by nine percentage points to 83%, down from 92% in the fourth quarter of 2021, mainly due to lower overall European demand.
As Borealis CFO Mark Tonkens pointed out, the results support the company’s strategic choice to focus more on the specialties business. Unlike in the commodities sector, which is susceptible to huge pricing swings, with specialty products, ‘ you are shielded from those kinds of developments’.

“In that market, you build up a long-term relationship with your customers that cannot just be replaced by volume coming from the US or from Asia. So that's really good to see.”

And what about the development in volumes of Borealis’ portfolio of sustainable products?
According to Gangl, Borealis is looking at ‘a very, very good development this year’, as a number of projects are kicking in, which will be visible in the overall numbers.

“I always said we need first to develop the technology; we need to be ready then to build the plans to grow and to do the acquisitions as well. And we have now reached the phase where in the next two years, you will see the impact also on the volume side.”