BASF Highlights Verbund Strategy As Key for Developing Its Operations

30 August 1999 00:00  [Source: ICB Americas]

To the chemical industry, for which reducing manufacturing costs is second only to increasing revenues as a means of boosting the bottom line, Verbund may seem like a catchy name for BASF AG to give to a philosophy that preaches integration into profitable and stable downstream markets. But BASF regards Verbund as a guidepost for capital investments, partnerships and acquisition decisions that have little precedent among companies that primarily focus on chemicals.

During a meeting in New York last week, Carl A. Jennings, president of BASF Corporation's chemicals division, said that several chemical companies integrate their manufacturing base to some extent, but he knows of "none that by design look for this degree and depth of integration."

BASF says Verbund has already led to substantial savings in Europe. Its sites in Ludwigshafen, Germany, and Antwerp are its Verbund models. At Ludwigshafen, 350 individual plants are integrated, yielding annual savings of á500 million ($522 million), according to BASF estimates.

In North America, Verbund benefits are already estimated at more than $100 million per year and will increase substantially after the integrated Port Arthur steam cracker complex that BASF is building with TotalFina comes on stream during the first quarter of 2001.

Though the Geismar and Freeport sites are BASF's two major facilities in North America, they lag behind the Ludwigshafen complex in scale and scope. A string of expansions at the two US plants will help bridge that gap.

At Geismar, BASF is building nitrobenzene, aniline, MDI, ethylene oxide, ethylene glycol, acetylene and C4-based BDO capacity. At Freeport, the company doubled its nameplate for acrylic acid and oxo-C4 to 300,000 metric tons apiece. There, the company is also building a plant that will have nameplates of 25,000 metric tons of hexanediol and 5,000 tons of caprolactone when it comes on in 2001.

BASF's strategy is to optimize the proficiencies and capital that already exist at its US sites, according to Jurgen Hambrecht, a member of the board of BASF AG. "We are not trying to merely duplicate the Ludwigshafen site in Geismar and Freeport, but instead are planting an individual 'chemistree' in each of these locations," he said at a recent conference in London.

Mr. Jennings says targeted acquisitions are also a pivotal part of Verbund. He points to deals like the company's swap of its container coatings business for PPG's surfactants unit, as well as the acquisition of Olin's surfactants, Ciba's chelates and Clariant's superabsorbent polymers.

"Any acquisition we make is gauged by how it fits with the Verbund concept," he says. "You'll be hard pressed to find acquisitions that do not fit with this strategy."

Mr. Jennings says that such deals strengthen BASF's position in products made from raw materials it already produces, highlighting another Verbund strategy: operating downstream businesses that have greater margins and less cyclicality than the merchant markets for the company's intermediates. "Where there is technology, we'll move into downstream businesses," he notes.

For example, the company's Poly THF and polyvinyl pyrrolidone businesses are more profitable and less volatile than the market for their raw material, BDO.

Mr. Jennings says the PPG and Olin deals have strengthened BASF's position in surfactants, allowing it to optimize the use of its ethylene oxide output. Likewise, superabsorbent polymer production is a profitable way for BASF to use its acrylic acid capacity.

Mr. Jennings also notes that BASF has been open to bringing partners into its Verbund strategy. He cites the cracker in Port Arthur as an example. Linking that cracker to Fina's Port Arthur refinery provides scale economy and the opportunity to optimize feedstocks, logistics and byproduct streams.

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