OMV (Vienna, Austria) reports higher operating earnings year on year (YOY) for its chemicals and materials business in the first quarter, boosted primarily by a substantially increased contribution from its Borealis joint venture (JV), which benefited, it says, from stronger nitrogen business profits and an improved polyolefins performance. OMV owns a 75% interest in Borealis.
In its outlook for full-year 2022, OMV says it expects European olefin margins to be around the same level as last year, while polyolefin margins in Europe are likely to decline from 2021’s exceptionally high levels. This year’s European ethylene indicator margin is expected to average about €468/metric ton ($492/metric ton), while the propylene indicator margin is forecast to be similar to last year as well, at €453/metric ton.
The European polyethylene (PE) indicator margin is forecast to average around €400/metric ton this year, falling from last year’s average of €582/metric ton. The polypropylene (PP) margin in Europe is expected to be about €600/metric ton, falling from last year’s average of €735/metric ton. In the second quarter of last year, OMV’s PE margin soared to a year-high peak of €803/metric ton, while its PP margin hit a record high of €898/metric ton.
For the first quarter, OMV says clean operating profit for the chemicals and materials segment rose 32% YOY to €584 million and was also up from €512 million in the fourth quarter of 2021. The increased income from Borealis was partly offset by lower contributions from Borealis JVs and OMV’s base chemicals business, it says.
OMV says base chemicals business earnings were lower despite higher ethylene and propylene indicator margins, which were in line with the company’s first-quarter preliminary trading statement issued earlier in April. The European ethylene indicator margin rose 6% YOY to €429/metric ton, and the propylene indicator margin increased by 23% to €444/metric ton. “While strong European demand more than compensated for increases in naphtha prices, propylene, in particular, continued to see a tight supply/demand balance,” OMV says. The stronger market environment was more than offset by larger customer discounts in light of the higher price levels, higher feedstocks mix costs, and rising power and natural gas prices, it adds.
The quarterly contribution of Borealis, excluding its JVs, soared 73% from the prior-year period to €469 million and was also up sequentially from €337 million. This was attributable mainly to an “exceptional performance of the nitrogen business and increased contribution from the polyolefin and base chemicals businesses,” OMV says. In Borealis’s base chemicals business, higher olefin indicator margins and positive inventory valuation effects were only partially offset by higher discounts and a lower contribution from the phenol business, it says.
Borealis’s polyolefins business saw strong growth despite lower polyolefin indicator margins and lower inventory effects. The European PE indicator margin fell 20% YOY in the first quarter to €438/metric ton, while the PP margin rose 6% to €647/metric ton. Although polyolefin margins last year benefited from a tightening supply/demand balance, the PE margin in the first quarter felt the impact of rising ethylene prices, it says. The PP market, however, “remained tight and could slightly overcompensate for increases in propylene prices.”
Realized margins for both commodity and specialty products were impacted positively by higher feedstock discounts, driven by high price levels of monomers and stronger prices—above market indicators—for certain product categories, it adds. PE sales volumes declined 7% YOY in the first quarter, with PP volumes falling 6%. The decreases were mainly due to the consumer products segment.
Contributions from Borealis’s JVs slipped to €64 million, down 49% YOY and also down sequentially from €138 million. Polyolefin prices in Asia saw only a slight increase following higher naphtha prices, but they were dampened as the market experienced oversupply caused by new capacities coming online, OMV says.
PE sales volumes from the JVs were flat YOY. Higher sales volumes at the Baystar JV in the US were offset by slightly lower volumes at the Borouge JV in Ruwais, Abu Dhabi, due to the Borouge 1 plant’s planned turnaround. PP sales volumes from the JVs rose 4% compared with last year and benefited from the recent startup of Borouge’s PP5 unit. OMV is forecasting that PE sales volumes (excluding JVs) in 2022 will come in above 2021’s 1.82 million metric tons (MMt), while PP sales volumes (excluding JVs) are expected to be slightly above last year’s total of 2.13 MMt.
OMV and Borealis’s steam crackers in Europe achieved utilization rates of 96% in the first quarter, up 7% YOY and in line with their preliminary trading statement. This was due primarily to higher availability of the cracker in Stenungsund, Sweden, OMV says. For the full year, the cracker utilization rate in Europe is expected to be slightly below 2021’s average of 90%, with maintenance turnarounds scheduled at Stenungsund in the second quarter and at the cracker in Burghausen, Germany, in the third quarter.
OMV says fertilizer prices saw “unprecedented highs” as the war in Ukraine led to tight supply, which more than offset higher natural gas prices. Inventory effects and the reclassification of the nitrogen business as an asset held for sale supported the result, it notes.
Capital expenditure (capex) in the chemicals and materials business increased in the first quarter to €882 million from €130 million in the prior-year period, driven mainly by a roughly €300-million equity injection for the Borouge 4 project and growth in organic capex, says OMV. Organic capex was predominantly related to investments in the construction of Borealis’s new propane dehydrogenation plant in Kallo, Belgium, and the construction of the ReOil® demonstration chemical-recycling plant in Schwechat, Austria. OMV forecasts that organic capex for its chemicals and materials business will be around €1.3 billion in 2022, up from €800 million last year.
Overall, group sales at OMV more than doubled YOY to €15.83 billion in the first quarter and were also up about €2.5 billion sequentially. The net income of €546 million declined YOY from €654 million. The company’s results included a previously announced €1.0-billion write-off in connection with the canceled Nord Stream 2 pipeline project from Russia to Germany.
by Mark Thomas
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