19 November 2008 17:30 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--BASF is facing a “massive” decline in demand and certainly can’t see any upturn within the next month or more.
The most worrying aspect of the news from the chemicals giant today, that it is closing 80 production plants worldwide and running a further 100 at reduced rates, is that there is no guarantee that demand will pick up again as soon as then.
The company's comments come on the back of those from Dow Chemical which at the end of last week said it expected the 10% to 20% fall in volumes seen in the fourth quarter to extend into the first half.
As Dow CEO, Andrew Liveris, suggested then, Dow, and the rest of the industry, would be forced to react.
The widening recession is strengthening its grip on the global economy. ?xml:namespace>
The Cefic Economic Task Force projections for the decline in European Union and US chemicals output next year, excluding pharmaceuticals, are grim.
The BASF closures fall most heavily on Europe and on its main manufacturing site in
But the global nature of the slowdown is more than evident in the need to cut back in Europe, Asia and
The slowdown has become much more widely apparent in recent weeks and has begun to affect the output of producers of all sorts.
BASF sells into important parts of the manufacturing economy such as automobiles and into markets hard hit by the global downturn such as construction and textiles.
As recently as the beginning of October its executives said the company was not seeing any real signs of a slowdown. (The early September operating data were not then available).
However, as the weeks have passed, evidence has mounted that the trouble facing downstream industries would feed back into chemicals. In October, BASF said it would cut caprolactam operating rates worldwide to about 65%.
At the time of the third quarter results announcement at the end of that month BASF drew attention to the difficult economic situation.
But, as executive board chairman, Jurgen Hambrecht, said on Wednesday, since then, key market have declined significantly.
“In particular, customers in the automotive industry have cancelled orders at short notice,” he added. Downstream inventory reduction and a lack of credit in customer industries have exacerbated the already difficult situation.
At least, BASF tells it like it is and other companies might be expected to follow suit. The news hurts – the BASF share price fell sharply following the company’s announcement – but then it is not wholly unexpected.
It is not simply upstream petrochemicals and polymers that are being affected (BASF is not a large polyolefins supplier) but the product lines tied to the specific end-use markets.
BASF reckons it is being flexible – and it can be if the Verbund operates as effectively as the company has always maintained.
The problems, however, is that the impact of a sharp decline in the automotive and other important end-use industries for chemicals could be felt for some time to come.
A typical car or light vehicle contains a lot of chemistry. The auto slump, driven itself by the credit crunch and the widening global recession, hits the chemicals business hard.
BASF is more robust and its portfolio better balanced, Hambrecht says. But the current situation is still difficult.
The company will be tested over the next few weeks and may well have to run its operations down further.
This is a fast moving market environment and if demand does not come off the floor soon it will be a bleak few months across large parts of the sector.
For more analysis visit Paul Hodges, Chemicals and the Economy
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