Nov 06 2022
Austrian petrochemical maker Borealis does not plan to idle any production capacity next year and is focused on growing its operations globally despite natural gas shortages in Europe, high energy prices and softer demand in high growth markets such as Asia, the company's CEO told S&P Global Commodity Insights.
"We are growing and not idling capacity," Thomas Gangl said in a recent interview. "We produce what we need, and we are changing the grades. We are increasing our market share continuously. We are producing products in segments that are more stable in pricing and margins."
Borealis, in which Austrian energy company OMV has a 75% stake, saw the utilization rate of its steam crackers in Europe plunge to 63% in the third quarter, compared with 88% a year earlier.
The company's polyethylene sales volumes, excluding those from its joint ventures, dropped 16% year-on-year in the third quarter, while polypropylene sales volumes, excluding those from its joint ventures, fell 19% during the same time period.
"We see also that some units from some companies are not producing anymore, so the demand reduction is having an impact on the operating rates also on Borealis," said Gangl.
"We are coming out of a period where the demand was high and availability was sometimes not given, especially in Europe; prices for polymers increased significantly and that is something that cannot continue for a long time. Prices are coming down to a more normal level, and with less demand prices will be under pressure."
European petrochemicals producer BASF on Oct. 26 lowered its expectations for global industrial and chemical production in 2022, saying the chemical sector in Europe needs to cut costs because of high energy prices.
European gas prices, which spiked in August amid lower supply from Russia, has since eased amid a mild winter and high gas storage levels.
Platts, part of S&P Global, assessed on Nov. 4 the European benchmark, the Dutch TTF month-ahead, at Eur114.85/MWh, easing 7.88% on the day. The marker, which started the year at Eur85.75/MWh, is down from Eur319.98/MWh reached on Aug. 26.
"In the long run the (energy) prices need to come down," said Gangl. "This is clearly indicating the disadvantage high gas prices have on the chemical industry."
Borealis started in October charging an extra Eur180/mt for its European products to cope with the high gas and energy prices, Gangl said.
"We introduced an energy price adder to our polyolefins because we cannot digest those high energy prices," he said.
"For our assets I do not see any impact (of gas shortage) in that respect but of course in terms of demand, the high inflation and high energy prices are putting pressure on demand."
Even in Asia, where most future growth is expected to come from, is showing signs of weaker demand. Additional capacity that is coming onstream during the down cycle is exacerbating the soft demand outlook, said Gangl.
"What we see at the moment (in Asia), demand is not picking up as planned and additional capacities are coming onstream," he said. "It will take a few more years for these additional capacities to be digested by the market growth."
Despite the dim outlook, Borealis is forging ahead with projects worldwide as part of plans to hit global production capacity of 600,000 mt in 2025 from 100,000 mt in 2019, said Gangl.
Borealis is looking at both mergers and acquisitions and organic growth to achieve its 2025 target.
Bayport Polymers has started commissioning Baystar, a one million mt/year ethane cracker at its Port Arthur, Texas site in the US. The project is a 50/50 joint venture between Borealis and TotalEnergies.
"Products from the new unit will become available from next year," said Gangl.
"With the existing units, you are not always running at 100%. It (ramp-up) depends on the market situation and the grades we are producing."
Borouge 4, the latest expansion of Borealis' joint venture with Abu Dhabi National Oil Co. in the UAE, is on track for start-up in 2025, he said.
Borouge raised its third-quarter production capacity by 7.9% on the year following the completion of its fifth polypropylene unit (PP5) in February.
The $6.2 billion expansion project of the Borouge complex in the industrial hub of Ruwais includes the construction of a 1.5 million mt/year ethane cracker and two polyethylene plants, making the site the world's largest single-site polyolefin complex at 6.4 million mt/year.
The completion of a delayed propane dehydrogenation plant being built at Kallo, Belgium, is still expected to be finished by mid-2024, Gangl said. Borealis had announced it would retender the majority of the project's construction contracts following termination of all contracts with the main contractor IREM Group.
"As we are delayed in the project, the need for products will be even higher than before," said Gangl. "We see demand in this market for the volumes significantly increasing over the next year so there will be high demand and we will ramp up as soon as possible."