Everyone, and Welcome to today's Borouge Q3 2026 earnings management webcast. My name is Seb, and I'll be the operator for your call today. If you would like to ask a question during the call, you can press *1 on your telephone keypad, or you can submit a written question via the webcast. I will now hand you over to Chris Bucknall, Vice President of Investor Relations, to begin.
Good afternoon, and thank you for joining us today for Borouge's third quarter and nine-month 2026 results call. My name is Chris Bucknall, Vice President, Investor Relations. I'm pleased to be joined today by our senior management team, Chief Executive Officer, Hazeem Sultan Al Suwaidi, Chief Operating Officer, Salem Al Busaeedi, Chief Marketing Officer, Roland Janssen, and Chief Financial Officer, Siegfried Wengler. Today's call will begin with a presentation from the management team covering our third quarter performance, the operating environment, and our outlook. We'll then open the line for questions. A copy of today's presentation is available on the investor relations section of our website. With that, I'll hand over to our CEO, Hazeem.
Thank you all for joining us today. Q3 marked a strong recovery for Borouge as we successfully increased utilization rates and restored production momentum. Increased ethane feedstock supply enabled us to raise utilization to 76%, driving production up to 949 KT, and supporting a strong recovery in sales volume to 1.1 million tons. Pricing reduced from the very high levels seen in Q2 as benchmark prices moved lower worldwide. However, our premium remains resilient, remaining above guidance for both PE and PP. Despite the softer pricing environment and elevated logistics costs, Borouge delivered adjusted EBITDA of $279 million, representing a 19% EBITDA margin. We generated $109 million in net profit, supported by the stronger volumes and improving operational performance. Feedstock availability was restored progressively throughout the quarter, and utilization reached approximately 90% in October. We enter Q4 with strong momentum based on the performance so far and our order book.
We expect Q4 to be the strongest of the year. Pricing was the key factor in Q3. Polyolefin prices reduced significantly from the peak levels seen in Q2, but remain well above pre-conflict levels. Borouge has maintained strong premium throughout the year, reflecting the strength of our differentiated product portfolio and resilient customer demand. We delivered a premium of $301 per ton for polyethylene and $156 per ton for polypropylene. Looking ahead, we expect a significant improvement in pricing, which is already evident at the start of Q4, as feedstock costs for the wider industry are increasing again. Turning to the financial results for Q3. Sales volumes increased 22% quarter-on-quarter to 1.1 million tons, reflecting both improved production performance and robust customer demand. Borouge delivered adjusted EBITDA of $279 million and a net profit of $109 million during the quarter.
Q3 financial performance was impacted by three main factors. The decline in benchmark prices from the peak levels in Q2, high logistics costs, and restricted feedstock supply. We continued to generate strong cash flow with adjusted operating free cash flow of $244 million and a cash conversion rate of 88%. As we enter Q4, we are well-positioned for a significant step-up in profitability, supported by higher benchmark prices, strong asset utilization, and easing logistical costs. With that, I'll hand over to Salem to take you through the operational performance in more detail.
Thank you, Hazeem, and good afternoon, everyone. Turning to operational performance. Production recovered strongly during the third quarter, up 32% quarter-on-quarter to 949 KT as ethane feedstock supply steadily increased. We are maintaining a high technical asset availability throughout the quarter following the repairs successfully completed in quarter two. At the Borouge 4 project, I am pleased to report that the PE7 plant is now mechanically completed and has commenced commissioning. This is one of the two main PE plants with a capacity of 780 ktpa each that make up the main part of the production capacity expansion. Turning to utilization. Improved feedstock availability, particularly ethane, supported high operating rate during the quarter. PE utilization increased significantly to 80% from 48% in quarter two, reflecting the restricted ethane supply in quarter two and the restoration in quarter three. Polypropylene utilization was stable at 71%.
which is the expected level based on the availability of the propylene feedstock, while we do not have an ethane allocation to run the OCU. Overall, utilization increased to 76%, compared with 58% in the second quarter. One of the key positive developments during the quarter was the steady improvement in ethane feedstock availability. Average ethane consumption increased by approximately 80% quarter-on-quarter, with the feedstock availability reached around 90% in September. With feedstock supply now substantially restored and expected to remain at these levels, we enter quarter four with a high asset utilization, stronger production volume, and increased operating leverage.
Thank you, Salem. Turning to market conditions, demand remained resilient during the quarter despite ongoing macroeconomic and geopolitical uncertainty. Elevated freight rates and logistic disruptions continued to support local-for-local supply dynamics, while customers remained focused on near-term purchasing requirements. At the same time, we saw a meaningful recovery in Asia plant operating rates, with steam cracker utilization improving to 87% by September, reflecting stronger industry operating conditions and improving demand across key markets. Overall, we see a more constructive pricing environment heading into quarter four. Looking at pricing, average realized selling prices declined 19% quarter-on-quarter, reflecting lower benchmark prices. Polyethylene realized selling prices were $1,309 per ton, while polypropylene realized selling prices were $1,185 per ton, down 17% and 20% quarter-on-quarter respectively. But these are still higher prices in the context of the levels seen prior to the conflict.
Despite the weaker benchmark environment, price premia remained resilient and above our through-the-cycle guidance at $301 per ton for polyethylene and $156 per ton for polypropylene. Looking ahead, benchmark prices have strengthened in October, and based on the current order book and market indicators, we expect realized selling prices in the fourth quarter to be higher than in quarter three. The market continues to be affected by geopolitical uncertainty and supply disruptions. Crude oil-linked feedstock prices eased from the peak in quarter two but remained elevated versus historical levels and began to increase again towards the end of quarter three. Higher feedstock prices for the wider industry is expected to support polyolefin prices into quarter four, and this is what we have seen in October so far. Turning now to sales volume.
We continue to utilize alternative routes to maintain reliable customer supply with zero dependence on the Strait of Hormuz. Sales volumes increased 22% quarter-on-quarter to 1,069 kilotons, supported by the recovery in operations. Going forward, we will continue to adapt our production and sales planning to target high netback regions and grades while remaining agile in response to changing market conditions and customer demand. Turning to revenue. Higher sales volume supported top-line growth in the third quarter despite lower average realized selling prices. Revenue increased 3% quarter-on-quarter to $1.4 billion as the 22% increase in sales volume more than offset lower pricing. Year-on-year, revenue was broadly flat as 22% higher average realized selling prices offset the impact of 21% lower sales volume. Lower benchmark prices weighed on pricing during the quarter, although resilient premia provided some offset.
Overall, revenue performance reflects the strong operational and volume recovery in quarter three despite the weaker pricing environment. Turning now to EBITDA and net profit. In the third quarter, we delivered adjusted EBITDA of $279 million, down 30% quarter-on-quarter and 51% year-on-year. This translates to an adjusted EBITDA margin of 19%, compared with 29% in quarter two and 39% in the prior year period. The lower margin primarily reflected weaker pricing and elevated feedstock and logistic costs, which more than offset the benefit of higher sales volumes. Net profit for the quarter was $109 million. Higher sales volumes, resilient premium capture, and improving operational performance help to reduce the impact of lower benchmark prices and elevated costs. Each of these factors looks better as we move into quarter four.
Turning to costs, the operating environment remained challenging during quarter three, with elevated feedstock and logistic costs continuing to weigh on the bottom line. On the feedstock side, high propylene benchmark prices in quarter two impacted margins on polypropylene sold in quarter three. Freight rates also remained elevated as regional supply chains absorbed geopolitical disruptions. Despite this headwind, we maintained a strong focus on logistics optimization and supply chain efficiency, resulting in a 19% reduction in selling and distribution expenses on a per ton basis. Turning now to the balance sheet. Net debt increased from $2.7 billion at FY 2025 year-end to $3.4 billion at the end of September 2026. Strong EBITDA generation of $1 billion, together with the favorable working capital movement, delivered free cash flow of $798 million in the first nine months.
Aggregate dividend payments of $1.3 billion and $70 million of share buybacks demonstrate our consistent focus on maintaining returns for shareholders throughout this period of uncertainty. Turning to our outlook. We enter the fourth quarter with strong momentum across the business and expect Q4 to be the strongest quarter of the fiscal year 2026. Feedstock availability recovered to approximately 90% in September and has remained at those levels in October, supporting higher asset utilization, increased production volumes, and improved fixed cost absorption. At the same time, while PE and PP benchmark prices moderated from exceptional Q2 peaks, they remain significantly above prior year levels and have started to move higher again in Q4. We also target a further improvement in logistic costs as the benefits of optimization initiatives continue to come through.
Taken together, these factors provide a solid foundation for a significant uplift in EBITDA in the fourth quarter. Our full year 2026 dividend intention of $16.2 per share remains unchanged, implying an attractive dividend yield of approximately 7% with the second half 2026 dividend expected to be paid in May 2027. I will now hand back to Hazeem for some further details on Borouge International and closing remarks.
Thank you, Siegfried. Today, our parent company, Borouge International, also released a summary of its own Q3 financial results. The company delivered a resilient performance in volatile pricing environment. Sales volumes increased by 11% quarter-on-quarter to 2.6 million tons, reflecting improved production performance and the strength of Borouge International's expanded global sales and distribution platform. While prices contracted from the exceptional levels seen earlier this year, volume growth helped partially offset the impact, resulting in a robust adjusted EBITDA of $899 million and free cash flow of $1.1 billion. Borouge International continues to make excellent progress on integration with run rate EBITDA synergies of $200 million secured so far, representing a significant step towards our target of delivering well over $500 million of synergies. Looking ahead, Borouge International is well positioned for a stronger fourth quarter.
To conclude, I would like to take a moment to thank all our employees for their dedication and commitment in navigating a very challenging operating environment. Their resilience, professionalism, and relentless focus on execution have been instrumental in delivering the strong recovery we have seen throughout the quarter. Looking ahead, with utilization approaching 90%, improving pricing, and easing logistic costs, we expect Q4 to be the strongest quarter of full year 2026. As you are aware, we are now part of Borouge International, the world's leading pure-play polyolefins company. This platform is uniquely positioned to generate significant long-term value for shareholders through increased scale, operation excellence, commercial synergies, and industry-leading innovation. The next steps for the Borouge International transactions continue to progress as planned, with key milestones expected to complete during 2027, subject to market conditions
Thank you for your attention. We are now ready to take your questions.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. You can also type a written question into the webcast Q&A. We will start with questions from the phone line, and the first one is from Prateek Bhatnagar from Jefferies. Please go ahead.
Okay. Thanks, guys, for the presentation and taking my question. I have three. So first one is on your other fixed and variable, production costs. They increased to $530 per ton from $430 per ton. So why was that increase? Because I, when trying to write your freight costs get reflected in the selling and distribution expense. That is fine, but why did the other variable and fixed production costs increase in the quarter?
So that is question number one. Question number two is on your polypropylene operating rates. What stops you from taking more propylene from ADNOC Refining and then ramping up your polypropylene production? So that is number two. The third question is on the ethane availability in Q4. Are you having any discussion with, say, ADNOC Gas about how much ethane they might be able to supply in Q4? And how is the repair in option going on? Thanks a lot.
Yeah. This is Siegfried here. Thank you for the question. I will take the first one, and if I understood you correctly, you were asking about the quarter-on-quarter increase around the variable cost. If you look at the composition of the cost in quarter three, we have sold off a higher share, relative share of polypropylene versus polyethylene, which has a different feedstock component, which comes at a higher cost on the propylene resource. So you have a mix effect that had this increase quarter-on-quarter, which was a bit temporary. And if we look towards the end of the quarter, that effect has already normalized. But again, on the quarter, that is still there. The second question.
I can take the second question.
Yeah.
Thanks for your questions. On propylene, we are maximizing our assets with polypropylene productions on the downstream. We have no issue in receiving propylene whatsoever. Salem can comment, but we have no issue. We are maximizing our propylene intake from ADNOC Refining. And the last questions would come to C2 and ethylene availability. As we also highlighted in our investor call update presentations, we are in a really good ramp-up situation with ethylene availability and the productions of ethylene, as stated, more than 90% of production. We are going very solid, strong into Q4. And definitely, we are securing a significant volume of ethylene into our crackers. And definitely this will boost and help our performance quite substantial in Q4.
Thank you. We will move on to the next question then. Next one is from James Hooper with Bernstein Société Générale Group. Please go ahead.
Hello. Thank you very much for taking my questions. I have got two, please. The first is on the $200 million of synergies from BGI. Can you give us a little bit more detail about what these measures are and also whether they will have any impact on Borouge PLC's performance going forward? The second is about the premia. With better product availability and higher operating rates in Asia, and you showed in the slides, how should we start to think about the premia versus the expected guidance? Will more of your product being available from higher utilization cause it to decline? Thank you.
Yeah. Hi, this is Roland, and thank you for your question. First question related to, let's say, the synergies. The synergies, literally, I would say, across all the fields and all the disciplines of bringing the three companies together. One of the key drivers, I would say, though, is very much coming from, let's say, cross-regional sales activities. So where we do see the opportunity to bring, let's say, product from North America with specific technology into other parts of the world and the other way around, of course. So, that is really, I would say, the major contributor that we see today on, let's say, those synergies deliverables. The other question related to your premia, and how we see those developing.
We have given our guidelines on premia and those guidelines remain unchanged. We do see, of course, in the second quarter, or we did see there, that those premia went up, and that was very much driven by the supply-demand and market situation around the second quarter. We do see a more normalization of the premia as we move forward, and you have seen that also in the Q3 numbers. But those premia continue to be very strong and also slightly above, or in polyethylene, actually highly above the guidelines that we have given. This is where we also see the value of a differentiated product mix coming to fruition. We do see that the market continues to be strong, but also particularly strong for those products where customers see the value of the solutions that we provide for their customers as well.
Thank you. Let's move on to next phone question from Sophia Ueda from Morgan Stanley. Please go ahead.
Good morning. Thanks for taking my questions. Actually, I have two. First one is on visibility for Q4. What visibility do you have on feedstock supply for the rest of Q4, and what still needs to improve to return to full utilisation? The second question is about B4. When do you expect B4 to reach full utilisation, and what production volume should we assume for 2027? Thank you.
Thank you for your question. For question one, as I highlighted, the organization has managed the situations very well in Q3, given all the vulnerabilities that we have been facing in the market and with all the logistic issues and so on. We are definitely moving toward a full comeback during Q4. We already see this in October. We see great results already in October. Moving forward toward the full quarter, I see giving even all the vulnerabilities and all instability that you see in the marketplace, we have a very good grip and control in managing the situation so far in terms all the business continuity, all the mitigations we have taken and all the current ramp-up that we see also on feedstock toward our system, really helping us to deliver excellent Q4.
We definitely have a great Q4, going to be a great quarter for us, and I would say almost a comeback quarter. It is too early now to judge, but this is more of an indicative and a momentum that we at least see from the organization toward delivering in Q4. Things are moving in the right directions, and we will make sure we bring the best for Q4 and moving forward. Now, in terms of Borouge 4 update, I am sure you are already seeing. First, we started with the XLPE, is important segment for us, for the Borouge International as well. This is a wiring cable. We are very proud of how we deliver high differentiated wiring cable products out of XLPE. XLPE, 100 kt, has already been fully commercialised out of Borouge 4, sorry.
Then we see also now full mechanical completion of PE7 has already been announced. A big news and congratulations for the organization to deliver safely PE7. We will definitely make sure we commercialize it as soon as possible. I want just to highlight, this is a third-generation Borstar technology. We will be definitely looking forward to produce a high specialty product out of our PE7. 700 kt, a big line will definitely make sure that will help us to drive a further also value for shareholder. Then definitely during 2027, we will make sure we fully operationalize the Borouge 4. It is too early now to give you the full picture of the Borouge 4. However, things are moving in the right direction. We will be definitely announcing more mechanical completions of the remaining units for PE6, and then of course, for Hexene unit very soon.
We will be announcing this, and then we will definitely also make sure we fully commercialize Borouge 4 during 2027. So definitely a great time for Borouge 4 team to start seeing the products come out of Borouge 4 now. Thank you.
Thank you.
Thank you. We will just move on to some questions we have received via the webcast. First of all, we have Aravind Krishnan with Al Ramz Capital with two questions. The first is, you have indicated that utilization is now at 90%. Has the feedstock availability matched the increase in production volume, that is, do you see any constraint in feedstock availability for 4Q26 production level? And what is your expected production ramp-up for Borouge in 4Q and 2027?
So, I want to also re-stress the point around Q4. As I highlighted, we are in a much more, I would say, comfortable situation with receiving the feedstocks, whether from propylene and the C2H6. This is a very clear, I would say, situation. We are now almost coming back toward a full utilization. As you have seen already, 90% utilization is, of course, a great comeback for Borouge given the, I would say, the situation that we have been navigating for Q2 and Q3. So a great momentum. 90% +, that is what we are pushing toward Q4.
I would say we are in a great momentum toward maximizing and getting the best out of our assets and the great efforts that have been done by our operation team and the great initiatives of operation excellence will definitely bring the best out of those assets, which we have been illustrating in the past. Definitely, of course, there is always more to do, but we are ramping up toward a, I would say, almost comeback situation. Of course, I would be cautious to give 100% situation because of the current, I would say, vulnerability in the region. Definitely for us, as I said, we are very much solid in bringing a great news for Q4 for Borouge. On Borouge 4, I think I have highlighted the updates on Borouge 4. Great news. PE7 is going toward commercial production.
We will be announcing more news on Borouge 4 in the near future for mechanical completions as well. Thank you.
Thank you. We also have a couple from Alex Estefanous from UBS. First one is, "You highlighted in your guidance that you expected benchmark prices to be higher in Q4 versus Q3. Could you outline your underlying reason/evidence to suggest this beyond the trend seen in October? Would this suggest pricing support to augment the expected volume recovery?
Yes, I will take this question. The prices are driven by a couple of things, and one important element here is, of course, our cost. We do anticipate that we will see continued elevated cost of raw materials, which, of course, need to be offset in the market, and that is one of the bases for us to assume that we are going to see strong pricing in Q4. The other underlying driver is demand. We have a good and strong order income, and we do anticipate that the demand will continue to be strong across also the higher value segments in Q4. The other reason for us to believe that we're going to see ongoing strong pricing in the fourth quarter is, let's say the relatively low inventory levels that we continue to see in the industry, which would basically support, let's say the higher pricing.
Last but not least, we do expect some turnarounds activity in the industry, which will further support a strong pricing movement in Q4.
Thank you. The other one from Alex Estefanous. If possible, could you kindly provide an update on logistics, what you are seeing on the ground, the Strait transit?
What we see on logistics, first of all, I think we have done a fantastic job to make sure that we become independent of the Strait of Hormuz. What you see today is that we can move all the quantities that we produce through the alternative routes. Now, having said that, the alternative routes, that does come at elevated cost. You have also seen that in our distribution cost development. I think the note of caution here is that we did see improvement throughout the quarter. What you are looking at is, of course, the average cost of the quarter. If you look at the trend within the quarter, we clearly see a downward trend of these logistic variable costs. As we look into the future, we continue that trend, or we see that trend continuing moving forward.
Again, I think the key message here and the underlying message is we have developed a situation or a position that we are independent on what is happening in the Strait of Hormuz. We do have the ability to get all the products out, and have the ability to continue to serve the market and to continue to serve our customers.
I just want to add.
Thank you. Go ahead.
Thanks, Roland. I just want to add also and re-emphasize because this is very important for Borouge, how this has been managed in this situation. As highlighted by Roland, we are fully dependent from shipping throughout the Strait of Hormuz. Zero shipments that go through the Strait of Hormuz. With our partners, we have been able to supply and export all the quantities that you have seen without going through the Strait of Hormuz . This has been very, very important for the company, ensuring that the full mitigations that has been really been effective in place. As we progress, we are very much confident we will continue develop that strategy with our partners and further also continue to enhance and improve our cost position as you highlighted also, Roland.
The volume that we supplied basically for Q3 has been all supplied without going through the safe formats. For Borouge, really to continue supply our great customers in different regions in such difficult times, really a remarkable job that has been demonstrated by the organization. Definitely, we see the situation as October and moving forward, we have all the plans to execute and manage the situations given the current situation. Thank you.
Thanks. We have a couple more on the phone. We have a follow-up from Prateek with Jefferies. Please go ahead.
Yeah. Thanks for taking my question, follow-up question. This question is on the B4 plant. The PE7 plant just started commissioning, and it will be in the trial run before it is commissioned. The volumes which are produced during the trial run, would Borouge start accepting that and we will see a pickup in the profitability of Borouge through that? That is the question. Thank you.
I suggest, Siegfried, you can take this also.
Yeah. Thank you for the follow-up question on PE7 as part of the Borouge 4 startup. As we mentioned, the plant is mechanically complete, and we are in the commissioning phase. It will take still a little while until you will see first material being commercially available onto the market. It will go through a typical ramp-up curve as normal. In terms of guiding on additional volumes to Borouge 4, that will follow soon after. Maybe just important to note, there is a second plant that will also be commissioned later in the year, which is then PE6. As already mentioned by Hazeem, both of them are Borstar third generation. Yes, we obviously expect an uplift in profitability coming from those plants.
Thank you. Next we have Faisal Al Azmeh from Goldman Sachs. Faisal, please go ahead.
Yes. Hi, and thanks for the opportunity to ask questions. Just trying to understand a bit more the dynamics around the sales volumes for the quarter and into Q4. So you did manage to sell effectively all of your production, and you've even managed to sell around 54,000 tons from inventory. How should we think about the guidance for Q4, in terms of how much you're tapping into that inventory? Is there more upside that can effectively take place of drawing down that inventory level even further? That's my first question. My second question is, when you think about the rerouting that you've managed to establish, and congratulations on the hard efforts there. Would that include also B4 volumes next year should the situation on industry remains there for a while? Thank you.
Thank you, Faisal. Great question. For the first questions, you were highlighting on-
Inventory
the inventory, yes. Basically, we're doing our level best also to maximize, of course, our bottom line value given the current challenges and the situation we have been facing. However, as I said, we are very much confident now on the production run. Again, we have also taken quite quantities out of our inventory, which has helped also our working capital. But now we see the situation much more better in terms of our production run, giving the current also ramp-up and availability of C2 ethane and much more improvements on asset availability. So definitely, we will maximize, I would say, our sales volume in Q4 based on whatever we produce in Q4. I would say giving the situations the low level of inventory we have now.
And definitely that giving also, as also highlighted by Roland, we are in a, I would say, a good situation when it come to prices. We are really pushing also quite substantial on prices upside as we see the vulnerability and the situations in a very challenging environment where many of our customers, they are really demanding our product. We are trying our level best to support them in this difficult time to ensure we deliver reliably our products, and that is something we have demonstrated for those customers. Definitely, maximizing volumes, productions in Q4 plus, I would say, maximizing our premium in such an environment. That is the summary of Q4.
Now, when it comes to Borouge 4 logistics, definitely, we are in discussions and working very closely with our partners, our local U.A.E. partners, to ensure our supply chain is a resilience and can further also absorb the increased sales production to ensure we are able to supply the increased productions from Borouge 4. Definitely, that is a good question, and we have already had a discussion with our partners, and we are very much fully ready to absorb this volume and supply it through the, I would say, proven channels and routes that are fully not dependent on the Strait of Hormuz. Definitely, we are waiting for the volume from Borouge 4, and that will help also to increase and improve our financial, inshallah, in the near future. Thank you.
Maybe let me just add one comment. As you have seen in quarter three, we have freed up quite a substantial amount from our working capital. The inventory reduction was obviously one key contribution to it. But in terms of guidance going forward for quarter four, you should not expect an additional consideration from working capital inventory reduction anymore.
Thank you. We just have another follow-up on the webcast from our event with our Al Ramz. I see the selling and distribution cost doubling in 3Q 2026 annually. Where do you see that cost progressing per ton for 4Q, and what is your expectation for 2027?
Yeah, I think they are building on what I was mentioning earlier on in terms of distribution cost. For us, the key focus was really to make sure that we have an alternative supply chain route out of the region without using the Strait of Hormuz, and I think we have proven to be very successful at this. The distribution costs initially were high as we were looking for these solutions. But throughout the quarter, we have seen that these costs were already coming down quite substantially. Of course, what you see is the average cost of Q3. But we expect that these costs will continue to come down as we move into the fourth quarter, but also for 2027. We will continue to put efforts in place and initiatives in place to make sure that these logistical costs will continue to come down.
Thank you. We have no further questions, so let me hand back to management for any closing comments.
No, I really want to thank the interactions and the great questions we have today. Great questions, and definitely, we are looking forward a great quarter four. I would say we are pushing hard by all means. And of course, the safety for our people remains at the top of all activities, and we will definitely continue maximize the value for our shareholders, definitely. And looking forward to engage and interact with you in the near future. Thank you. Have a good day.