Interview: Borealis sees logistics as key price driver for polymers in 2022

Supply chain constraints will continue to dominate the pricing of polymers in 2022, senior executives of petrochemicals producer Borealis told S&P Global Platts in an interview Feb. 3.

Global supply chains have been hit by congestion at ports, pushing up shipping costs for a number of dry goods, adding to upward pressure from inflation and rising energy costs.

A number of market sources have attributed this to difficulty in securing feedstocks, which are globally traded.

"The continuation of logistics is something that will influence price levels still," Borealis Chief Financial Officer Mark Tonkens said. "Demand is still very healthy; we see good demand in the market from all regions and with that I think 2022 will be a very good year for our business."

Company CEO Thomas Gangl said it is harder to provide further detail but he added that logistical bottlenecks have so far proved elastic, with initial prognoses of three months stretching into nine months.

"The latest you hear is it may continue the entire year. For Europe that gives us a better pricing position due to lack of imports," Gangl said.

Greener alternatives such as biopolymers and recycled polymers have also seen further upward pressure, with their premium to virgin product on the rise.

Platts assessed the Northwest Europe recycled polyethylene terephthalate clear flakes premium to virgin PET at Eur35.75/mt on average in Q4 2021, up nearly 38% on the year.

Expanding the use of material produced from bio-feedstocks and recycled feedstocks is a key goal for Borealis, with the company's current bio-capacity at 100,000 mt/year and a target of 350,000 mt/year in place by 2025, Gangl said. However, widespread market adoption remained "not easy", he added.

Managing costs

Rising energy and conventional feedstock prices have been a theme across the commodities complex in recent months.

Dated Brent has exceeded $90/b in recent weeks and Platts assessed naphtha, a key feedstock for olefins in Europe, at $821.75/mt Feb. 2, up 52% on the year.

For gas, crucial for power generation, Platts assessed the Dutch TTF day-ahead price at an average of Eur86.41/MWh in Q4 2021, up from Eur13.78/MWh in Q4 2020.

This has affected output at Borealis, with some European ammonia production stopping, Gangl said.

"Enormous price swings" in the shorter-term have at times presented some difficulties in reacting immediately but on the whole Borealis has been able to pass the higher price of feedstocks on to customers, Tonkens said.

"When you talk about utilities like electricity that can be more challenging but we are very well hedged and so don't have that impact on our P&L in the short-term," Tonkens said.

Growth projects on track

Tonkens said that the 480,000 mt/year Ruwais PP5 project start-up at subsidiary Borouge -- a joint venture between Borealis and Abu Dhabi National Oil Company -- was "imminent".

"We expect that to start in the coming weeks in Q1, we are very close to on-spec [production]," he said.

The completion of the project -- Borouge's fifth polypropylene unit -- will expand Borouge's PP capacity by more than 25% to 2.24 million mt/year, according to the company and take Borouge's total polymer capacity to 5 million mt/year.

The unit was originally scheduled to come online in Q3 2021 but was delayed by COVID-19 measures.

Elsewhere, Borealis' Baystar new joint venture steam cracker in Port Arthur, Texas, is set to start up in Q2, Tonkens said, with the nearby 625,000 mt/year Borstar polyethylene unit at Pasadena, Texas, due to start up in Q3.

The new Baystar 1 million mt/year ethane-based steam cracker will provide feedstock to the existing 400,000 mt/year existing Borstar polyethylene units as well as to the new unit at the Pasadena site.

The new Borstar polyethylene unit will more than double the site's polyethylene capacity to 1.025 million mt/year.

Borealis' major European growth project, PDH 2, is on track to start in Q3 2023, with "good progress" being made, Tonkens said.

The world-scale 750,000 mt/year propane dehydrogenation unit is located at Kallo in Antwerp Harbour, alongside Borealis' existing 480,000 mt/year PDH unit and a polypropylene production site closely linked to the Antwerp gas terminal.

OMV is now the 75% owner of Austria-based Borealis following an additional 39% stake acquisition in October 2020. The remaining 25% stake in Borealis is held by Abu Dhabi's sovereign wealth fund Mubadala.