Borealis tumbles 48% in second quarter

Profits at Borealis plunged 48 per cent in the second quarter, as record prices for crude oil took their toll.

Profits at Borealis, a European petrochemical company that is majority-owned by the Abu Dhabi Government, plunged 48 per cent in the second quarter, as record prices for crude oil took their toll. Quarterly net profit at the plastics and chemicals maker, which is based in Austria, was ?71 million (Dh403.8m), down from ?137m the year before, the company said yesterday. Profit for the first half of this year fell 25 per cent from the same period last year.

Borealis, which is 65 per cent-owned by the International Petroleum Investment Company, a Government entity, said the decline was due to a 28 per cent increase in the cost of naphtha, a petrochemical feedstock produced at oil refineries. The company, however, said it saw a bright spot in its UAE subsidiary, Borouge, which it said was a leading contributor to second-quarter profit. "We have said before that we anticipate ongoing volatility and a softening of the markets and have been proactively preparing ourselves, especially by improving our cost competitiveness," Mark Garrett, the chief executive, said.

"We are in a sound financial position to pursue our strategy based on value creation through innovation and to continue our ambitious investment projects in the Middle East." The European petrochemical industry as a whole suffered a tough quarter, as prices for naphtha rose in correlation with the price of crude, said Tony Potter, director of Europe and Middle East olefins studies at CMAI, a petrochemical consultancy. "Q2 problems are purely to do with feedstock costs."

Mr Potter said petrochemical companies would see profits recover slightly in the third quarter, on the back of steep price increases for their products, but were bracing for a tough period ahead. Feedstock costs would remain high even as new petrochemical supply comes online in the Middle East and China, leading to a potential glut on the market. "We're sort of on the brink of an overcapacity downturn," he said. "We think margins are starting to get squeezed in Q4 and certainly in Q1 of 2009."

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