Chemicals & Materials

In the Chemicals & Materials segment, OMV is one of the world’s leading providers of advanced and circular polyolefin solutions and a European market leader in base chemicals, fertilizers*On June 2, 2022, Borealis received a binding offer from AGROFERT, a.s. for the acquisition of its nitrogen business including fertilizer, melamine and technical nitrogen products., and plastics recycling. The Company supplies services and products to customers around the globe through Borealis and its two joint ventures: Borouge (with ADNOC, based in the UAE and Singapore) and Baystar (with TotalEnergies, based in the United States).

Financial performance

The clean Operating Result declined in 2022 by 34% to EUR 1,457 mn (2021: EUR 2,224 mn). A substantially higher contribution from the nitrogen business and the positive impact from stronger olefin margins were more than offset by considerably weaker European polyolefin margins, significantly lower positive inventory valuation effects, lower sales volumes in Europe, and a reduced contribution from the Borealis JVs.

The contribution of OMV base chemicals decreased despite higher ethylene and propylene indicator margins, mainly as a result of the planned turnaround of the Burghausen steam cracker and the incident at the crude distillation unit at the Schwechat refinery on June 3, 2022. The ethylene indicator margin Europe grew by 20% to EUR 560/t (2021: EUR 468/t), while the propylene indicator margin Europe increased by 18% to EUR 534/t (2021: EUR 453/t). While the first half of the year was characterized by strong demand for olefins and supply shortages, the second half saw a sharp decline in demand, which was partially compensated for by lower operational rates of European crackers. Declining naphtha prices, after the peak in the first quarter, provided support to the olefins indicator margins in a very volatile market environment. Lower production due to the reduced utilization rate at the Schwechat and Burghausen steam crackers, higher costs of the feedstock mix, which also includes other intermediates besides naphtha, and growing utility prices weighed on the result.

The utilization rate of the European steam crackers operated by OMV and Borealis went down by 16 percentage points to 74% (2021: 90%). The utilization rate in 2022 came in lower as a result of the planned turnaround of the steam crackers in Burghausen andStenungsund, but also as a result of the incident at the crude distillation unit at the Schwechat refinery on June 3, 2022.

The contribution of Borealis excluding JVs declined by EUR 470 mn to EUR 967 mn (2021: EUR 1,437 mn). This was primarily due to substantially lower polyolefin indicator margins and significantly lower positive inventory valuation effects, while the outstanding performance of the nitrogen business and higher olefin indicator margins provided some support. The Borealis base chemicals business experienced a decline despite improved olefin indicator margins, mainly caused by negative inventory valuation effects and the impact from the planned turnaround at the Stenungsund steam cracker. The polyolefin business saw a strong decline in polyolefin indicator margins and substantially lower positive inventory valuation effects. In 2021, polyolefin indicator margins experienced historic highs, driven by strong demand in the European markets coupled with a tight supply-demand balance, as a result of a heavy maintenance season and worldwide logistical constraints. The polyethylene indicator margin Europe decreased by 33% to EUR 390/t (2021: EUR 582/t) while the polypropylene indicator margin Europe came down by 34% to EUR 486/t (2021: EUR 735/t). In the first half of 2022, polyolefin indicator margins started to normalize from the highs of 2021, at a slow pace to start, but deteriorated substantially in the second half of the year on the back of a slump in demand induced by the global economic slowdown and inflationary pressure on customers. In addition, increased availability of imported volumes into Europe put pressure on the margins. While the realized margins for standard products saw a substantial negative impact due to the emerging demand weakness and higher utility costs, margins for specialty products experienced slight improvements. Higher feedstock discounts and stronger prices, above market indicators, for certain product categories provided some relief. Polyethylene sales volumes went down by 7%, while polypropylene sales volumes decreased by 13% compared to 2021. The decrease in sales volumes stemmed mainly from the consumer products and infrastructure industries, while the mobility industry experienced a slight increase. The contribution from the nitrogen business saw a substantial increase compared to 2021. Fertilizer margins were substantially higher compared to 2021, as a tight supply situation more than offset the increased natural gas prices. The reclassification as asset held for sale also impacted the result positively.

The contribution of Borealis JVs declined by EUR 202 mn to EUR 332 mn (2021: EUR 534 mn), mainly due to lower contributions from Borouge and from Baystar. The favorable impact of a stronger USD managed to partially compensate for these effects. Polyethylene sales volumes from the JVs remained at the previous year’s level, while polypropylene sales volumes from the JVs increased by 19%. In 2022, Borouge sales volumes benefited in particular from the ramp-up of the new polypropylene unit (PP5). A one-time effect from pension provisions negatively impacted the result in 2022 at Borouge, and the successful listing of 10% of Borouge’s total issued share capital on June 3, 2022, lowered financial and operational contributions in comparison to 2021. The pricing environment in Asia weakened compared to 2021, as new polyolefin production capacities came online and consumer demand was dampened by COVID-19 lockdowns. Compared to 2021, Baystar experienced a softer market environment and was impacted by the full depreciation charge after the start-up of the ethane cracker and increased interest expenses, while the new unit experienced only a slow ramp-up in light of operational challenges.

Net special items amounted to EUR 582 mn (2021: EUR (396) mn) and were mainly related to the successful listing of a 10% share in Borouge, which led to a gain from disposal of around EUR 0.3 bn. In addition, the binding offer received from AGROFERT for Borealis’ nitrogen business triggered a write-up of around EUR 0.3 bn. The Operating Result of Chemicals & Materials came in at EUR 2,039 mn, compared to EUR 1,828 mn in 2021.

Capital expenditure in Chemicals & Materials amounted to EUR 1,896 mn (2021: EUR 835 mn). The increase was driven by an equity injection to Borouge 4 of around EUR 0.4 bn in 2022 and growth in organic capital expenditure. In 2022, besides ordinary running business investments, organic capital expenditure was predominantly related to investments by Borealis in the construction of the new propane dehydrogenation plant in Belgium, which included non-cash effective CAPEX related to leases in the amount of around EUR 0.5 bn, the construction of the ReOil® demo plant in Austria, and the turnaround at the Burghausen refinery.