INSIGHT: BASF facing a tougher time

07 October 2008 19:24  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--One might expect a degree of optimism in the face of adversity from industry giant BASF, as the world’s financial markets see-saw in reaction to efforts to stabilise the global banking system.

The company takes a long-term view and the breadth of its portfolio, in product as well as geographic terms, can usually stand it in good stead.

Some of its executives on Tuesday - ironically visiting London to see a Science Museum exhibition ‘The Science of Survival”, part-sponsored by the company - were understandably cautious. But they were certain that a calm approach was needed in the face of the current maelstrom on the world’s financial markets.

“It feels good to be part of the old bricks-and-mortar industry and to hold on to assets that don’t disappear overnight,” executive board member Hans-Ulrich Engel said. “We have not seen the same amount of hype.”

But from talking to a number of regional and oil and gas managers, it was difficult to tell how the company feels the financial crisis might hit its own business and the manufacturing sectors that comprise so much of its customer base.

The European chemical industry and BASF had continued to show strength this year – at least up until August, Engel said, although he acknowledged that BASF was facing headwinds following the strong three years from 2005 to 2007. September figures are not yet available.

BASF faces the consequences of slowdown in automobile production in the US, where unit output of less than 1m in September was the lowest in 15 years. That was now spilling over into Germany.

Parts of the construction market BASF serves clearly have been difficult, but other parts have remained strong.

So far in 2008 the US has been weak and while Europe has been somewhat weaker than last year. In Engel’s words, it “still looks okay”.

Engel suggests that 2008 for BASF will still prove to be “good to relatively good”.

“I would hope that what we see [on the world’s financial markets] is a correction of a situation that some saw 18 months ago. I hope we do not see any lasting effects," Engel said.

The problem is now that few can really tell. The knock-on effects of the continuing credit crisis have yet to become widely apparent. Certain markets, such as polymers, are slowing down fast, while others remain relatively healthy.

BASF has acknowledged before that global economic and industry growth rates are slowing. But current projections for growth in key economies such as the UK differ widely depending on the source, making the forecasting process for the chemical industry doubly difficult.

There was some slowdown in volume demand for chemicals in Europe towards the end of the first half, but BASF says its order books are still relatively full.

The million-dollar - if not billion-dollar - question now is what happens next. There will be changes, no doubt; but they are difficult to see with any certainty.

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By: Nigel Davis
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