Borealis doubles profit on the back of cheap oil and strong demand

Strong demand, a weaker euro and lower oil prices helped second-quarter profit to more than double at the chemicals and plastic maker Borealis.

The Vienna-based company, majority owned by Abu Dhabi’s International Petroleum Investment Company (Ipic), reported a net profit of €351 million (Dh1.43 billion) for the second quarter, up from €137m in the previous quarter.

Brent crude averaged about US$60 per barrel in the second quarter, with prices dipping once again to a six-month low this week at under $50 per barrel.

Lower prices combined with a growing market glut are good for crude by-products, such as plastics, as it results in cheaper production costs.

“Despite an overall lower price environment compared to 2014, [this year] presents industry margins for the polyolefins segment not seen since 2007,” said the Borealis chief executive Mark Garrett.

He said that the company is focusing on expansion at its Abu Dhabi National Oil Company joint venture, Borouge.

The company expects to raise its annual production of polyolefins to 3.5 million tonnes this year, up from 2 million tonnes in 2014. It plans to raise annual production capacity to 4.5 million tonnes after completing the third phase of expansion by next year.

The US energy analysis company IHS warned that continued market volatility will make it difficult for petrochemical companies to make plans as each scenario – oil price recovery to more than $100 per barrel, stagnant at current levels or a further plunge – produces drastically different results.

“Oil price volatility is creating a nightmare for companies planning investments,” said Don Bari, vice president of technology and analytics at IHS Chemical. He said that the long-term oil recovery scenario would affect the industry the most.

“Since oil dynamics drive marginal production cost and price-setting mechanisms for many chemicals, plastics and fibres, a prolonged oil price recovery could shift the feedstock advantage from ethane and back to a more cost-competitive naphtha.”

However, for the near term, IHS believes economic and geopolitical risks will continue to challenge the oil glut and crude prices to drop further.​

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