Q3 EBIT slips but still “solid” / Energy costs bite / Plastics suffer / China operations in ascent
Worldwide, BASF’s Q3 2022 performance was far from even (Photo: BASF)
BASF (Ludwigshafen, Germany; achieved “solid” EBIT before special items in the third quarter despite continued strong headwinds from high raw materials and energy costs and a slowdown in trading, CEO Martin Brudermüller said in a conference call with journalists, with the group reporting sales of EUR 21.9 bn rose 12% year-on-year.

The description of earnings as “solid” means that the decline in group EBIT to EUR 1.3 bn could be held to EUR 517 mn despite the mounting problems. The weakening from the 2021 period was blamed largely on higher prices for natural gas in Europe, where group operating units faced additional gas purchase costs of EUR 2.2 bn.

Worldwide, BASF’s Q3 2022 performance was far from even, the CEO said. Downstream segments improved earnings “considerably”, but upstream profits were said to have declined significantly compared with the high levels seen in the year-earlier period.
Lower chemicals, plastics production
The two segments closest to the plastics supply chain, Chemicals and Materials, were most affected by the overall weakening. In the third quarter, the company said the two only contributed EUR 600 mn to the group’s EBIT before special items, less than half the EUR 1.5 bn generated in the 2021 quarter.

Downstream activities performed better, contributing EUR 725 mn to EBIT. The partial recovery of the global automotive sector, a major customer for plastics, was a “positive” surprise, Brudermüller noted.

For the group as a whole, BASF’s management stuck to its earlier forecast of full-year adjusted operating income at or slightly below EUR 7.2 bn versus EUR 7.8 bn in 2021. However, even this will be challenging, the CEO said, with Europe and Germany, in particular, contining to face an uphill climb.

As the global macroeconomic environment continues to deteriorate in the wake of Russia’s invasion of Ukraine and the shutdown of gas pipelines, Germany especially staggered under the double burden of inflation and high energy prices in the third quarter. As BASF has warned (see of 17.10.2022), this made a substantial dent in the region’s profitability, and the knock-on effects will continue to be felt.

As demand tapered off in the second half, the chemicals giant began reducing output or temporarily idling plants. To try to flatten the internal price curve, it also pushed through price increases, where possible, and is continuing to work on technical optimisation of plants and processes, particularly at Ludwigshafen, Brudermüller said.

Related: Plastics producers calculating product carbon footprint
European cuts to be permanent
With no short-term improvement from the markets expected, the company is now preparing to put the brakes on European spending and “permanently downsize” its footprint in the region.

The plans have not been finalised, as talks with the local labour officials are ongoing, but the BASF chief was clear that the EUR 500 mn savings package announced last month will also mean downsizing the workforce. Nevertheless, the managing board said it believes this could take place largely through attrition and without compulsory redundancies.

With the austerity programme, Brudermüller said, “We aim to streamline non-production units in operating, service and R&D divisions, as well as in the corporate centre.”

Explaining the choice of the word “permanent”, he pointed to figures showing that even in strong business year such as 2021, Germany and the rest of Europe contributed only a third of group EBIT. During 2022, earnings have softened further, with German operations reporting a Q3 operating loss of EUR 130 mn before special items.

While this year has also produced some setbacks in Asia outside China, North American business has held up well. With its third-quarter results, BASF did not outline major plans for the latter region but underscored that China will gain in importance. The Ludwigshafen heavyweight is moving rapidly ahead with the EUR 10 bn chemical complex gradually taking shape at Zhanjiang in the southern part of the People’s Republic (see of 25.07.2022).

The sharper focus on China may not win BASF many friends in the West, but for its CEO, who spent a major part of his career in Asia managing the group’s business there, it is clearly a priority, according to observers. Brudermüller, who told journalists that the Chinese activities are “very, very profitable”, is scheduled to accompany German Chancellor Olaf Scholz to the People’s Republic this week.
Cefic warns on outlook for Europe
As for Europe, industry association European Chemical Industry Council (Cefic, Brussels; also has expressed concern about the declining profitability of the region.

The organisation predicts that the EU sales of its member companies will fall from a market share of 14.4% in 2020 to 10.5% in 2030, with their Chinese business gaining four percentage points to 48.6%.

“We are approaching the point of no-return. If no emergency solution to the energy prices is provided to our sector, we are not far off the breaking point,” said director general Marco Mensink. For the first time ever, the EU imports more chemicals than it exports, both in volume and value, resulting in a trade deficit of EUR 5.6 bn for the first half of 2022. Hundreds of businesses are already in survival mode with the first closures already occuring, Mensink warned.

Related: Plastics Europe warns against a deindustrialisation of Europe

Cefic – whose current president is BASF supremo Brudermüller (see of 12.10.2022) – has published a position paper urging the EU and its member states to “help limit the impact of the region’s higher energy prices.” The paper noted that failures in the chemicals sector will ripple downstream to endanger the food, healthcare, construction, and transport sectors.

Both Cefic, and Brudermüller – speaking for BASF – have also urged the European Commision to scale back some of its ambitious legislative and regulatory efforts to level the playing field with other regions.
02.11.2022 [251468-0]
Published on 02.11.2022
BASF: Unruhe im Vorstand des Chemieriesen?German version of this article...

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