Lenzing earnings slump as COVID-19 pressures fiber prices, volumes

MOSCOW (MRC) -- Textile fiber manufacturer Lenzing reports a steep fall in net profit for the first half of 2020, to EUR1.5 million (USD1.8 million) from EUR78.8 million in the first half of 2019, on revenue down 25.6% from EUR1.09 billion to EUR810.2 million, said Chemweek.

The company says it “faced a historically difficult market environment with increased pressure on prices and volumes resulting from the COVID-19 crisis.” EBITDA dropped 46.6% year on year to EUR96.7 million and EBITDA margin decreased from 16.6% to 11.9%. Second-quarter figures have not been disclosed.

The immediate effects of the COVID-19 crisis increased price pressure on textile fibers across Lenzing’s entire product range, the company says. It also saw declining demand for textile fibers in all regions, mitigated partly by slightly higher demand for fibers in the medical and hygiene segments.

"The COVID-19 crisis has an impact on the entire textile and apparel industry and further increased the price and volume pressure on the global fiber market. Likewise, Lenzing was also confronted with this historically difficult market environment and focused on the health and safety of their employees, the continuation of long-term partnerships, and ensuring their sustainable business development," says Stefan Doboczky, CEO of Lenzing.

Lenzing says that the implementation of measures for structural earnings improvements in all regions and making use of the short-time work model, which was temporarily introduced by the Austrian government, also mitigated the negative effects of the pandemic. Lenzing adjusted its production volumes and sales prices “to market reality” in the first half, it says.

Lenzing’s capital expenditure roughly tripled in the first half to EUR268.7 million. The increase is a consequence of progress made on major projects in Brazil and Thailand, the company says. Meanwhile, Lenzing says that its previously announced Hygiene Austria joint venture (JV) with Palmers Textil, founded in late April, has been producing and selling mouth-nose and FFP2 masks since May. The JV can produce up to 12 million masks per month, Lenzing says.

Lenzing in March suspended its forecast for 2020 as a consequence of the COVID-19 crisis and resulting limited visibility. At that time, the company expected its 2020 results to be below 2019 levels. Lenzing says it remains difficult to give a precise full-year outlook, but the company expects that its revenue generation and operating performance in the remaining two quarters of 2020 will exceed those of the second quarter. The company also assumes that its previously announced sCore TEN performance-improvement strategy “will yield a significant contribution to earnings starting from 2022."

As MRC informed earlier, Russia's output of chemical products rose in June 2020 by 2.6% year on year. However, production of basic chemicals increased year on year by 4.9% in the first six months of 2020. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the output in January-June. Production of benzene was 106,000 tonnes in June 2020, compared to 110,000 tonnes a month earlier. Overall output of this product reached 721,000 tonnes over the stated period, up by 3.9% year on year.

Shell Deer Park, Texas, refinery restarting large crude unit

MOSCOW (MRC) -- Royal Dutch Shell Plc began restarting the large crude distillation unit (CDU) at its 318,000 barrel-per-day (bpd) Deer Park, Texas joint-venture refinery, said sources familiar with plant operations, said Reuters.

Shell plans to begin restarting the small CDU at the Deer Park refinery later this week, the sources said.

As MRC wrote before, Shell will announce a major restructure by the end of the year as the company prepares to accelerate its shift toward its net-zero emissions goal by 2050, said CEO Ben van Beurden to employees. The restructuring will include workforce reductions as part of broader cost-cutting measures, although no figures have been decided yet, the CEO reportedly said during an internal webcast.

We remind that Royal Dutch Shell Plc plans to idle a sulfur recovery unit (SRU) at the joint-venture Deer Park, Texas, refinery in 2021, said Shell spokesman Curtis Smith in July 2020. Currently, the refinery is operating at about 75% of its 318,000 barrel-per-day capacity because of reduced demand due to the COVID-19 pandemic.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading.

HollyFrontier to run refineries at up to 81% of capacity in third quarter

MOSCOW (MRC) -- Independent US refiner HollyFrontier plans for its five refineries to run up to 81% of their combined throughput of 457,000 bpd in the third quarter of 2020, reported Reuters with reference to Timothy Go, executive vice president and chief operating officer.

The refineries’ combined crude oil throughput will range between 340,000 and 370,000 bpd in the third quarter, Go said on a conference call with Wall Street analysts to discuss the company’s second-quarter results.

As MRC informed earlier, CVR Refining and HollyFrontier Corp have cut their workforce in late June, as demand falls due to the ongoing coronavirus pandemic. Thus, CVR Refining laid off approximately 50 salaried employees and HollyFrontier cut at least 12 jobsd. HollyFrontier previously said it would lay off about 130 workers at its Cheyenne, Wyoming, refinery as it converts to a renewable diesel facility.

We remind that Valero Energy Corp’s Memphis, Tennessee, crude oil refinery is operating at two-thirds of its 180,000 barrel-per-day (bpd) capacity because of low demand in the COVID-19 pandemic. The Memphis refinery cut production by as much as 50% in early April and has been raising production gradually since then.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Braskem posts loss on charges, lower margins outside Brazil

MOSCOW (MRC) -- Braskem posted a net loss of R2.5 billion (USD468.1 million), including a provision of R1.6 billion related to geological damage at its Alagoas salt mining site, said Chemweek.

The company's second-quarter results included an additional R1.6bn related to the geological event it has been accused of causing in Alagoas state. The increase in EBITDA is mainly due to lower feedstock costs and lower general and third-party service expenses in Brazil and Mexico.

In the US, the company's new PP plant in La Porte, Texas, has reached 100% completion in the second quarter, with "first production operations on commercial scale" expected for the third quarter of this year.

Second-quarter capacity utilisation rates in Brazil and the US were temporarily reduced due to lower demand and inventory effects in the petrochemical and plastics production chain.

The operating capacity of Braskem's petrochemical complexes in Brazil fell to 64% in May. However, with the recovery in demand in June, the capacity utilisation of the complexes increased, resulting in a rate of 75% for this month.

In the US, capacity utilisation rates fell to 88%, and then normalised in June, resulting in a rate of 90% in the quarter.

As MRC informed earlier, Supply disruptions caused by the coronavirus have forced Braskem to lower its targets for the amount of recycled plastic it plans to sell this year. A new global sales target of 10,000 tonnes of resin made from mechanically recycled plastic, up from the company's previous target of 20,000 tonnes before the pandemic.

Earlier it was reported that the structure of Braskem Idesa polyethylene (PE) sales by destination over the past twelve months has changed due to sales in Asia. Total sales in the first quarter of 2020 were up 2% compared to the same quarter last year, but sales to Asia accounted for only 13% of sales made in the same period in 2019.

According to MRC DataScope, imports of PE to Russia decreased by 7% in January-June this year and reached 328,000 tonnes. The largest decrease in external supplies fell on high-density polyethylene (HDPE).

Braskem is a Brazilian petrochemical company headquartered in Sao Paulo. The company is the largest petrochemical company in South America and the fifth largest in the world in terms of production.

Borealis net earnings decline, major project schedules to suffer slippage

MOSCOW (MRC) -- Borealis (Vienna, Austria) has reported a net profit of EUR64 million (USD76 million) for the second quarter of 2020, down 80% year on year (YOY), and says its major growth investment projects will suffer delays of between “a couple of weeks and a few months” due to the COVID-19 pandemic, reported Chemweek.

The company’s 625,000-metric tons/year steam cracker at Stenungsund, Sweden, is also expected to remain offline until the fourth quarter of this year, it says, following a fire in May that saw the unit shut down and force majeure declared.

Borealis says the lower earnings were driven mainly by a negative inventory value development due to lower oil prices, a reduced advantage from the use of light feedstock versus naphtha, and the unplanned cracker outage in Sweden. Net sales of EUR1.53 billion were down from EUR2.14 billion a year earlier, while total sales including its Borouge joint venture with Abu Dhabi National Oil Co. (Adnoc) declined 26% YOY to EUR1.89 billion.

The company says polyolefins sales volumes remained “relatively stable, even during the pandemic,” while the contribution from its fertilizer business was at the same level as a year earlier. Borouge recorded higher sales volumes YOY, but weaker polyolefin prices in Asia impacted earnings negatively, it says.

In an exclusive interview with CW this morning, Alfred Stern, CEO, and Mark Tonkens, CFO, discussed the progress of the company’s major growth projects, a positive outlook for the remainder of 2020, and the impending change in its ownership structure. The polyolefins industry in Europe has been impacted by COVID-19 and the oil price plunge since the end of the first quarter, but certain segments of the company’s portfolio are performing well, Stern says. This includes healthcare, parts of its consumer packaging business, and its fertilizers segment, “but our automotive business has not been spared the challenges experienced by many players in this industry,” he says. The resilience program launched by Borealis earlier this year to reduce costs and investments is helping to maintain positive results and strong cash flow during the pandemic, he says.

The company expects net profit to increase in the second half of 2020 compared to the first half, partly due to the “substantial inventory devaluation” it incurred in the second quarter that “will not happen” in the next six-month period, Tonkens says. Sales volumes in the quarter remain encouraging at almost the same level as last year despite the pandemic, while its light feedstocks advantage which “vanished” earlier in the second quarter is now returning, he says. “In June we started to see that coming back, to an extent,” he notes, adding that the company has built its feedstocks business to be flexible, “so we can react to different conditions.”

Borealis’ strong product portfolio during “a deep crisis like this” has been supported by a “good strategic set up” and the company’s ability to shift quickly from sectors with lower demand towards higher demand segments, Stern says.

The company remains committed to and continues to progress construction at its three major growth projects—the Kallo, Belgium, propane dehydrogenation (PDH) plant; its Baystar 50/50 JV with Total in the US; and the PP5 Borouge polypropylene (PP) project at Ruwais, Abu Dhabi—but the impact of the pandemic means “there will be a slide” in their schedules, according to Stern. “We are looking at delays ranging from a couple of weeks to a few months on these projects,” he says. The 750,000-metric tons/year PDH plant at Kallo was originally due online mid-2022 before that later shifted to nearer the end of the year, while the Baystar steam cracker and Borstar polyethylene (PE) plant are expected online in early 2021 and early 2022, respectively. Stern told CW in May it was “unrealistic” to expect the projects to be completed on time due to current circumstances.

Borealis expects to reach the next milestone before the end of this year on a potential USD4-billion PDH and PP project in India, in partnership with BASF, Adnoc, and the Adani Group, when it will then decide “how we can further proceed,” Stern says. The companies signed an agreement last year to carry out a joint feasibility study to evaluate the proposed complex at Mundra, India. Earlier this year Borealis pulled out of a proposed USD6.8-billion development for an integrated ethane cracker and PE project in Atyrau, Kazakhstan. “That was a pure business decision,” he says, based on the results of a feasibility study and a longer-term view that the opportunity was “not sufficient to invest such a huge amount.” Borealis said in May the company would reduce its 2020 capital expenditure by 25% to EUR750 million from the original plan.

On the agreed change in ownership arrangements by the company’s two shareholders, Mubadala (Abu Dhabi) and OMV (Vienna), for OMV to increase its share to 75% from 36% at present, Stern says the transaction is still expected to complete in the fourth quarter of this year. The ongoing focus on sustainability by both Borealis and OMV is expected to lead to “more opportunities on how we can work together,” in a circular economy, he says.

Stern also says that Borealis “is not in a rush” to find a potential partner or partners for its fertilizer business, but that “if the opportunity arises, then we would still be interested.” The fertilizer market in Europe “would benefit from more consolidation,” he says.

As MRC informed earlier, Borealis has maintained its cracker in Stenungsund (Sweden) offline longer than initially anticipated, after it was shut following a force majeure declaration at the site on May 11, 2020. Sources said that the unit has been offline longer than initially expected with no confirmed startup date. The Stenungsund cracker has an ethylene capacity of 625,000 tonnes and a propylene capacity of 150,000 mt/year.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Borealis is a leading provider of innovative solutions in the fields of polyolefins, base chemicals and fertilizers. With headquarters in Vienna, Austria, Borealis currently employs around 6,500 and operates in over 120 countries.