While the third quarter of 2020 was an improvement over the second for Vienna-based materials company Borealis, it sees more issues ahead as "the pandemic and the lockdowns are back," CEO Alfred Stern said.
Borealis announced a net profit of 163 million euros ($192 million) for the third quarter of 2020, vs. 207 million euros ($244 million) in 2019.
Prices continue to be low, putting pressure on the margins, but demand is strong in the majority of sectors in which the company is active, he added in discussing the company's quarterly results.
“However, the low prices and margins are, of course, of concern. In my opinion, there are two elements driving this. The first is the low oil prices, which lead to low feedstock prices and the second is that, in global terms, the supply-demand balance is such that the capacity utilization has come down," he said.
The strong demand led to higher polyolefins sales volumes vs. the same quarter of the previous year despite less auspicious market conditions. Third-quarter Borouge performance also showed improvement over the previous quarter, but remained below 2019 levels due to lower polyolefin prices and the significantly weaker market environment.
The higher volumes, said Stern, are an effect of the different market segments in which Borealis is active.
“That, and our capability to also – to some degree – shift some of our production capacities between the different segments. Healthcare and hygiene is a segment that has grown significantly, as demand for PPE [and] face masks, has risen. Demand in the consumer products, packaging segments is also very good," he said.
The one exception, he went on, is automotive. In the second quarter, automotive was "significantly reduced," but, “This segment showed a strong recovery in the third quarter, but is not back at the 2019 level. Sales are down 10 percent compared to the third quarter of 2019. So in the total mix, we were able to achieve a slight increase.”
“This recovery may be due to the stimulus programs and subsidies from governments to support the automotive industry,” added Mark Tonkens, chief financial officer. “And, while we don’t have full insight into that - plus, it depends on the brands to which you sell. In general, we’ve seen a very good bounce back.”
He noted that the expectation was that it would be quite some time before this and the other markets to really recover from the effects of the pandemic: "At least through 2021, and we’ll see what happens in 2022."
Both Stern and Tonkens emphasized that the strong cash flow from operating activities, dividends from Borouge, the stringent management of investment activities, and cost discipline enabled Borealis to maintain its strong financial position at the end of the third quarter, with a gearing of 30 percent.
“Specifically, we have prioritized," Tonkens said. "None of our large projects have been deselected and ongoing projects have been continued as is, but, with such a broad portfolio, we took a close look at what could be, for example, postponed for say, twelve months. In other words you optimise.
“And we also looked at how we could be more efficient and effective with the investments we went ahead with,” he added.
Progress on some projects, said Stern, was slower in the second quarter due to problems in getting the workforce to the locations due to COVID-19.
“But most important is the work we’ve done on our cost management, our working capital management, which allowed us to end up with a balance sheet at the end of September that is much stronger than we had planned for. That’s a good signal and it shows the agility and strength of the company," Stern said.
The company’s three big growth projects have once again picked up speed since the second quarter. Although there have been delays, Borealis has to date been able to mitigate the consequences of the pandemic. The effects of the second wave that is currently spreading across the globe, however, remain to be seen, causing the outlook to be uncertain.
This applies equally to developments in price. While some price improvements, particularly in Asia and the U.S., can be seen, the future remains precarious given the high volatility of feedstock prices, but also due to the rise in the number of coronavirus cases, especially in Europe.
“We have been able to deliver a solid financial result while maintaining our commitment to our important global growth projects. Our core values of ‘safety first’ and operational excellence have served us well and will enable us to navigate adeptly through this challenging period,” Stern said.
“The third quarter of 2020 has again demonstrated how critical our products are for sustainable living, especially in a crisis such as the COVID-19 pandemic. For example: we’ve all been confined to our homes, the restaurants are closed, but we’ve continued to eat [thanks to] packaging that uses as little energy as possible, that is hygienic and inexpensive is critical to making this possible.
"And while this does not detract in any way from the fact that we need to work hard on making plastics circular, still, the personal protection equipment, face masks, medical equipment: I believe the solutions that plastics provide are very difficult to get with other materials with a similar low environmental footprint,” he said.