Borealis – Credit Update

8 June 2012 Credit Research
and can turn the cracker margin negative until the next margin settlement.
Credit Flash - Borealis AG
Segments Borealis maintains two segments, Polyolefins and Basic Chemicals, which are
described below:
■ Polyolefins (68% of FY11 sales): Borealis is Europe's second biggest producer of
polyethylene (PE) and polypropylene (PP) (trailing only LyondellBasell with other
competitors including Ineos, Dow Chemical, SABIC) used in the infrastructure, automotive
and packaging industries. The business segment serves a broad variety of markets, and
focuses on high value-added polyolefin grades with superior performance properties and
supposedly less price volatility. Borealis, for example, produces high performance
polymers for the automotive industry which are used in car body panels, dashboards, and
bumpers to reduce weight and thus fuel consumption. It is also an important supplier to the
wire and cable industry (data and communication wires, high, medium and low voltage
energy cables, etc.) and the pipe industry (water and gas distribution pipes, waste and
sewage, chemicals pipes). Other applications of Borealis polyolefins include packaging for
healthcare, food, boxes, etc.
■ Base Chemicals (32% of FY11 sales): Borealis sells a variety of products from the steam
cracking process in its Base Chemicals segment. Borealis' two crackers are included in this
business segment, which also produces the feedstock for the Polyolefins segment. Despite
having operated crackers for some years, Borealis' Base Chemicals was only created as a
separate segment in 2007. The segment is a leading producer of phenol in the Baltic
region. Phenol is a key feedstock in the production of polycarbonates (engineering plastics
used in windows, for example), nylon and, as the name suggests, phenolic resins. Borealis
also produces Acetone, which is a byproduct of the phenol production process, and is used
in solvents for paints, fibers and pharmaceuticals. In Melamines, which are used in the
production of laminates, adhesives for wood-based applications, coatings and compounds
for household goods, Borealis is the European market leader and the second largest
producer in the world. In Linz, Borealis also manufactures plant nutrients. With the
acquisition of the French fertilizer producer PEC-Rhin in November 2011 (acquisition price
not disclosed, but we estimate an amount of around EUR 100mn), Borealis strengthened
its fertilizer activities (including, among others, nitrogen fertilizers). Given the strong
product diversification, Borealis competes with a number of chemical producers including
Yara, Agrofert, Fertiberia, and OCI Melamine.
SALES BY SEGMENT OPERATING PROFIT BY SEGMENT
EUR mn
6,000
5,000
4,000
3,000
2,000
1,000
0
2006 2007 2008 2009 2010 2011
Polyolefins Base Chemicals Non Allocated
in EURmn
400
300
200
100
0
-100
-200
-300
2006 2007 2008 2009 2010 2011
Polyolefins Base Chemicals Non Allocated
Source: Company data, UniCredit Research
Borouge JV In 1998, Borealis and Abu Dhabi National Oil Company formed the Borouge JV in order
UniCredit Research page 4 See last pages for disclaimer.