Austrian petrochemical company Borealis is taking an optimistic approach to market fundamentals in 2023, despite lower polyethylene and polypropylene margins at the end of 2022 as a result of higher energy costs and weak demand in some end-segments, CEO Thomas Gangl told S&P Global Commodity Insights.

Gangl, alongside CFO Mark Tonkens, pointed towards a less depressed macro-economic outlook as a reason for a more positive approach to long term market dynamics, with recessionary fears yet to materialize in contrast to wider market expectations.

Despite clarifying that market conditions for polyolefin material were expected to remain illiquid in the first half of 2023, Gangl said: "It is a market which is developing in the right direction".

Commenting further on the outlook for 2023, Gangl said "We do think that the sales volumes will be slightly higher than in 2022," adding that operating rates were also expected to increase.

Contextual Optimism

Wider geo-political and up-stream market dynamics were also cited as cause for short- and long- term optimism by Gangl and Tonkens, with both citing stabilizing energy costs and more flexible COVID 19 restriction policy in China as potential factors for provoking growth in the sector across 2023.

Despite that, some macro-economic pressures were stressed as a continuing factor into 2023, with the cost-of-living crisis particularly highlighted as a depressive factor for end user demand for durable plastics, as consumers reassess where they spend.

A divergence in derivative industries was also noted by Borealis, with stable buyer interest observed in energy, business, healthcare and automotive sectors, while demand from consumer product and infrastructure industries remains sluggish.

"Margins have been under pressure, especially for the commodity areas," Gangl said, adding: "When we talk about energy, healthcare and automotive, we see very stable and good demand [...] on the other hand, consumer products and infrastructure has been much more challenging to get the volumes there and to achieve margins".

The optimism offered by Borealis speaks to the wider uncertainty seen across European polypropylene and polyethylene markets in recent weeks, with market participants offering a variety of perspectives on future market dynamics. Activity across both markets has been muted across 2023 so far, with consumers reluctant to engage in transactional activity due to weak demand across the value chain, leading to limited consensus regarding outlook for the rest of the year.

"If you do n't like it, you should go and do something else" Tonkens said in response to the wider contextual pressures throughout polyethylene and polypropylene markets, adding that "is a bit painful sometimes, but it is the journey, you need to get up stronger".

PP homopolymer spot pricing stood at Eur1,195/mt ($1,437/mt) FD NWE on Feb. 3, stable on the day and up 7% on the week according to S&P Global Commodity Insights data, with consumers reducing contractual intake in favour of competitively priced spot material. Low density polyethylene spot prices stood at Eur1,220/mt FD NWE on Feb. 3, unchanged on the day and week with transactional activity limited across the market.

Record profits cushion quarterly margin decreases

In its financial results released Feb. 3, Borealis said its Q4 European PE indicator margin declined by 19% to Eur370/mt compared to Eur458/mt a year earlier, the company's PP indicator margin saw a larger decrease of 42% year-on-year at Eur398/mt. Overall PE and PP margins in 2022 were down by 33% and 34%, respectively. Sales volumes of PE were down by 3% compared to Q4 of 2021, whilst PP sales volumes fell by 19%.

Despite the fall in margins, Gangl noted record net profits of Eur2.1 billion across the year for Borealis, alongside improved quarterly sales volumes of polyolefins in Q4 2022. Noting that "this was achieved in an environment of geopolitical strife, rising inflation, market volatility, the lingering pandemic effect" Gangl said that "perception is changing at the moment...the confidence is getting better".