Despite an excellent fourth quarter, Borealis full year profit plummets

Borealis released 4 February its 2020 fourth-quarter and full-year financial results, which showed a strong end to a challenging year. The company’s fourth quarter profit came in at €210 million, substantially above the company’s Q3 result and higher than €138 million achieved in the same quarter of 2019. As Mark Tonkens, CFO at Borealis, phrased it, ‘had Borealis issued guidance, this result would have been above’.

The reason, he said during a brief telephone interview, was a combination of volume increase and strong markets in both Europe and Asia.

However, rising natural gas prices and operational issues dragged down the performance of its Fertilizers business, impacting the final result of the quarter and negatively affecting the company’s full year financial performance, the company reported.

In that context, the company has also announced that it is looking for a buyer for its Fertilizers and melamine businesses.

“Consolidation in the fertiliser market needs to happen,” said Tonkens. “There are too many smaller players in Europe. Two years ago, we looked at whether it would make sense to divest these businesses, but now, we really need to make this happen. We are a chemical company with a focus on polyolefins, not a fertiliser company.”

That said, divesting the Fertiliser unit does not mean that Borealis is narrowing that focus. The company has a large range of specialty polymers -  a portfolio that is relatively unaffected by the cyclicality of the polyolefin industry, and hence can be counted on to provide a stable margin level. Other interests include Borouge, the joint venture with ADNOC and Baystar, the joint venture with Total in the USA. “We feel comfortable that we have a solid backbone, and prefer to focus on that and expend there,” said Tonkens.

Will it also mean a greater focus on the company’s recycling projects?

As Tonkens noted, circularity is currently a huge topic, and one that is rapidly gaining momentum. “So, yes - and since the deal with OMV closed on 29 October 2020, we see that this has opened opportunities to go even faster on this journey,” he said. The companies are complementary: OMV has focussed on chemical recycling, while Borealis has mainly concentrated on mechanical recycling.

And according to Tonkens, this was one of the deal’s synergy potentials to accelerate circular economy. “OMV wants to move towards becoming a sustainable chemical company  - we see it as an opportunity to do even more. We have no doubt this transition will further accelerate and we want to be at the forefront. If we can do that together with OMV, excellent.”

Yet, however strong 2020 Q4 was, the results for the full year were a different story. Compared to 2019’s recorded net profit of €872 million, 2020 was considerably lower at €589 million. Next to the impact of the deteriorating fertiliser market environment and the impact of the COVID-19 pandemic, the cause was attributable to a combination of factors. These included a lower oil price environment, resulting in reduced light feedstock advantage and negative inventory effects in Europe, and a lower polyolefins price environment in Asia.

On a positive note, despite the COVID-19 pandemic, demand for polyolefins remained healthy, leading to a slight sales volume increase compared to the level of 2019.

In addition, polyolefin prices have recently risen very considerably, and as yet show no signs of slackening. This price development, said Tonkens, is a combination of better than expected demand - ‘a strong rebound’ - next to cracker outages, ‘including our own in Stenungsund in  Sweden’, he said.

He added that there were no material flows coming from the USA and, unexpectedly, no capacity additions due to hurricanes, which have disrupted building schedules.  Plus, high container costs have made shipping materials van Asia prohibitively expensive.

“There are a lot of elements for a solid price environment,” he said. “We are happy about the developments we see.”

Regarding the future, he was sanguine: “We are currently focussed on keeping our plants a safe place to work. Our latest insights are - at least to the summer for Europe - that we will continue to have a Covid environment.”

And on a more positive note, he added that society, as a whole, had learned to deal with the situation and was now better able to mount a response.

“The question is what will happen in the longer term, say 2022 and onward, when the support given to business and industry is taken away. Will more people lose their jobs? It will have an impact on the economy.”

We were lucky, he said. “When the crisis started, most of the economies were in relatively good shape. Had this happened on the back of the 2009-2010 crisis, it would have been different. Now, the affordability was there.”

The future is uncertain, but Borealis is in a strong position to take advantage of the opportunities for recovery that the post-pandemic economy will provide.

“ We are maintaining our commitment to being the leading provider of sustainable chemical and innovative plastic solutions that create value for society,” he said.

“PostCovid, I hope we can say it soon.”