Borealis Explores Possible Sale of Fertilizer Unit

Borealis AG, a closely held global chemicals producer, is looking to find a partner or sell its fertilizer business in a deal that could value the business around $1 billion, according to people familiar with the matter.

 

The potential move by Vienna-based Borealis comes as fertilizer prices remain well below their highs of 2011 despite a rally in recent years. The price of some nitrogen fertilizer products, for instance, has fallen close to 60% since their highs in 2011, according to pricing data collected by Scotiabank.

 

 

“What we can confirm is that we are [in] an exploration phase to find a strong partner to grow our fertilizer, technical nitrogen and melamine business,” a spokeswoman said in an emailed statement in reference to fertilizers as well to other parts of the company’s operations.

 

The spokeswoman declined to comment on whether the fertilizer business could be sold.

 

Borealis specializes in nitrogen fertilizers, which typically use gas or coal as a base to create compounds that can be spread on soils. Nitrogen is also used in cooling systems and as a hardening agent for metal surfaces, among other uses. Melamine is a chemical compound used to produce the likes of laminates, glues, dinnerware, and flame retardants.

 

The global fertilizer industry has long argued that growing populations and greater meat consumption in emerging markets, among other factors, would drive fertilizer prices higher by boosting demand for nutrients to help farmers increase crop yields.

 

But ambitious price forecasts fell short, undermined by factors ranging from disappointing emerging market demand to oversupply.

 

Borealis, which operates in over 120 countries and has about 6,800 employees, was a victim of that challenging market, posting an almost 18% drop in earnings last year to €906 million ($989.5 million) from €1.1 billion in 2017 as its fertilizer sales volumes fell 4%, according to the company’s annual report.

 

“The fertilizer market environment remains challenging due to global oversupply resulting in depressed margins,” Borealis said in the report.

 

Still, fertilizer prices have recovered somewhat since their lows over the last several years. Scotiabank expects the nitrogen market to continue to improve, not least as production capacity in China falls.

 

Borealis is 64% owned by Abu Dhabi sovereign-wealth fund Mubadala Investment Co. with Austria-based energy company OMV AG holding the remaining stake.

 

The company distributes more than 5 million metric tons of fertilizers and nitrogen products annually through a network of 60 warehouses across Europe, according to its website.

 

Borealis’s other main operations include its Borouge joint venture with Abu Dhabi National Oil Co. for the production of polyolefins which are used in plastics by the energy, automotive and consumer product sectors among others. It didn’t break down the contribution of these divisions to its overall earnings last year. But it indicated they fared better than the fertilizer business.