13 November 2003 16:20 [Source: ICIS news]
That simple statement emphasises the fact that times are still extremely tough in the company’s core chemicals, petrochemicals and plastics businesses.
BASF’s chemical intermediates did not do well and suffered from heightened competition and the cost of plant start-ups in Asia. Petrochemicals and plastics were under pressure from high feedstock costs and lower prices, while performance chemicals and coatings failed to match the strength of last year’s similar quarter.
Clearly, the BASF portfolio, broad as it is, is struggling to perform, hence the degree of restructuring the company is undergoing across Europe and Nafta (the North America Free Trade Area) to cut the cost base. Added to that is the fact that capital spending is being held to below depreciation and research costs are coming down.
On the positive side, volumes were higher in the third quarter – even though margins were under severe pressure. Hambrecht sees some economic improvement – and he is quite optimistic.
But "in BASF we look at facts", he says. And indeed there are few of those around to demonstrate any real climb from the trough of the current chemicals downturn.
Hambrecht is, however, quite clear when he says that overcapacity will not disappear overnight and political uncertainty in the Middle East, the high and volatile oil price and the adverse dollar/euro exchange rate all weigh against the company.
Hambrecht said that Q4 earnings before interest and tax are expected to be below the same period last year. However, he expects the current quarter to be better than the third.
"We see that at our customer inventory levels are rather low and that ordering times have been shortened significantly," he added, admitting that BASF has played its part in that process. But on the retail side there is no clear picture of where business might be going in December in the run up to the (Christmas) holiday period.
Hambrecht says that BASF will not close down plants as it did so last year at its main manufacturing site in Ludwigshafen, Germany, because turnarounds had been completed in September and October. Capacity utilisation is not currently a problem. BASF is still very much in self-help mode in Europe and in Nafta as it tries to stem losses across the Atlantic and counter the pressure on margins in Europe.
Increasingly, the focus is very much on Asia and on streamlining the portfolio.
On the one hand, therefore, the pace of investment in Asia - in China and Malaysia – is not letting up but neither is the focus on the shape of the portfolio.
The BASF operations produced a lot of cash in the first three quarters of the year but there are opportunities now for the company to make moves to strengthen key businesses as well as pay down debt and hand money back to shareholders. Mega-mergers may not be on the cards – the main performance measure remains the goal of earning a superior return against the cost of capital but fill-in acquisitions can be expected, as can be further divestments and plant closures.
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