Austria’s Borealis 'will not downsize' amid high energy prices in Europe

Elevated crude and natural gas costs have shrunk the margins of the chemical industry, plastics company's chief says

Borealis chief executive Thomas Gangl speaks at a panel discussion at Adipec in Abu Dhabi. Victor Besa / The National
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Austrian plastics company Borealis will not cut jobs or reduce its production capacity as high energy prices shrink industry margins.

“We see some announcements from other companies of downsizing and reducing capacities in Europe,” chief executive Thomas Gangl told The National on Wednesday on he sidelines of the Abu Dhabi International Petroleum Exhibition and Conference (Adipec).

“For us, this is not a topic. We have a very stable asset base.”

Last week, Germany’s BASF announced cost-reduction measures until the end of 2024 to save the world’s largest chemical company €500 million ($495m) annually amid high natural gas and power prices.

Natural gas prices in Europe have soared since Russia, the region’s largest supplier of gas, began curtailing exports in response to EU sanctions.

The Dutch TTF gas futures contract, the benchmark in Europe, has fallen in recent weeks as natural gas storage levels rise but is still up nearly 200 per cent from 2021 levels.

Natural gas liquids and naphtha created from crude oil during the refining process are used as feedstock to manufacture a variety of petrochemicals.

“Europe has prepared well for this winter …. we need to make sure that energy prices are coming down again,” said Mr Gangl.

Borouge, the joint venture between Adnoc and Borealis, reported a 14 per cent rise in its nine-month revenue last week on higher sales volumes of polypropylene, a key petrochemical.

There was a “significant” increase in polypropylene sales but “the overall situation is tougher than what we had before”, said Mr Gangl.

Borouge, which listed on the Abu Dhabi Securities Exchange in June after raising $2 billion in an initial public offering in Abu Dhabi's biggest listing, said it remained confident about reporting a profit for the 2022 financial year.

After its listing, Borouge was included in the FTSE Global Equity Index Series, which is used by investors globally to guide asset-allocation decisions and support portfolio construction.

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“This is a cyclical business, especially with demand slowing down due to inflation effects [and] China's growth not where it used to be,” said Mr Gangl.

Frequent lockdowns under its zero-Covid policy have dampened China’s economic growth in recent quarters.

Russia’s invasion of Ukraine and global supply chain bottlenecks pushed shipping rates higher in the first half of 2022.

“The freight rates are coming down [and] this is a clear signal that the overall situation is easing [but] it is not back to normal,” said Mr Gangl.

Supply chains in the automotive industry, a major consumer of plastics, are “working better”, he said.

Global car makers have reported record profits as demand outpaced the supply of new vehicles amid production and supply chain issues.

“They have quite a backlog … we also see that the demand in this area is improving,” said Mr Gangl.

“What we have to get used to is that disruptions [and] changes are happening more often and it is getting more volatile due to all the political topics.”

Borealis, which is majority owned by Austrian energy company OMV, reported a 2021 net profit of €1.4bn ($1.38bn).

The Vienna-based company employs about 6,900 employees and operates in over 120 countries, according to its website.

Updated: November 03, 2022, 4:55 AM
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