Borealis reported a net profit €151 million for the first quarter of 2020, down 25% from €200 million in 2019, according to results released by the company today.
The company said the fall in net income was ‘mainly attributable’ to Borouge, whose performance was affected by weak market conditions across Asia, one of Borouge’s most important markets.
Alfred Stern, CEO, however, commented during a telephone interview earlier today that ‘in view of the situation that we find ourselves in, we think the first quarter for Borealis was a good quarter’.
The company has continued to see good demand in the packaging segment and healthcare applications, as well as in the fertiliser market.
“Where we see a weak market environment is in automotive and in pipes,’ said Stern.
He noted that Asia, as a whole, suffered in the first quarter from the virus outbreak and lockdowns, which were implemented much earlier there. Combined with the low oil prices, which caused polymer prices and margins to drop, this explained the Borouge results.
Moreover, prior to the outbreak, global conditions in the markets were already weakening, among other things due to ongoing trade wars and an economy that was starting to sputter.
“As we explained back then, the polyolefin industry was coming off the peak of the cycle, which is why margins were coming down. These were normal movements of a cyclical industry. That was happening at that moment: and now we’ve got coronavirus and low oil, which is making the situation worse,” said Stern.
CFO Mark Tonkens, who was also on the call, pointed out that ‘total volumes were almost at the same level as last year’.
“Basically, they’ve shifted between segments…within our fertilise business our volumes were up compared to last year,” he commented. The polyolefin market came under pressure, but for Q2, the impact is likely to be bigger in Europe, he added.
“We are trailing behind Asia – and behind China specifically from a Covid recovery perspective. If you look at the longer-term outlook, it is uncertain. At this moment we are anticipating quite solid volumes for the entire year, albeit at lower margins, but those lower margins were also anticipated already in our plans - so that’s the picture that we have,” he said.
In response, Borealis has implemented a resilience programme designed to help protect against economic and business uncertainties related to the pandemic, and to ‘ensure that we can continue the large investment programmes we embarked upon’, Tonkens continued.
The measures include a downward adjustment of the investment level in 2020, cost measures aimed at limiting discretionary costs and a conservative hiring policy. However: “We need our existing staff,” he stressed.
“Our operations are going full throttle; but you always need to prepare for uncertainty and do that timely, which we have done in previous down cycles also, which has helped to come out of crises stronger and continue to grow.”
The company will continue to invest in its circularity and sustainability ambitions. “We have not de-prioritised those investments,” Tonkens concluded. “There might be some pragmatic delays, but this will not go away.”
Stern agreed, stressing that these are an ‘integral part of our strategy.’ In that context, OMV’s increased stake in Borealis is an exciting development, he said. OMV, which will hold a 75% stake in Borealis when the transaction closes towards the end of this year, has developed a propriety solvent-based chemical recycling process for polyolefins. For Borealis, which has primarily focussed on mechanical recycling, this could be a powerful combination going forward.
“OMV has a pilot plant, and we are working with them. The first small quantities are already coming out, which we will repolymerise into virgin polymers again," he reported.
Even in times of low oil, interest in recycled materials continues. The past weeks saw a slight reduction in demand, partly due to the segments and markets in which recycled materials are mainly applied, said Stern, but noted that demand was already reviving.
Looking ahead, it is difficult to predict how events will unfold, said Stern. The pandemic will change some things, but whether, for example, the trade wars will resume is anyone’s guess.
“I am pretty confident that some of the investments will be delayed or cancelled and that will reduce the amount of additional capacity that is coming into the market and that will help,” he said. “But at this moment, supply and demand are out of balance in any case, and that is probably the biggest driver at the moment,” he ended.