BASF cuts sad, but not surprising - US sources

19 November 2008 16:50  [Source: ICIS news]

By Ben Lefebvre

HOUSTON (ICIS news)--The announcement that BASF, the world’s largest chemical company, would cut production at 100 of its plants worldwide was worse than surprising - it was entirely predictable, sources in the US said on Tuesday.

Plummeting demand from the automotive, construction and textile industries forced the German company to idle about 80 plants and cut production at another 100 worldwide for its ammonia, styrene and polyamide product chains. About 20,000 employees will be affected by the production cuts.

“That doesn’t surprise us. None of the ABS producers can afford to keep any inventory," said a source in the acrylonitrile-butadiene-styrene (ABS) market.

“Every single day brings a new low point in feedstocks, so everyone is keeping inventories matched with demand,” the source said.

BASF’s four ABS plants in Europe, South Korea and Mexico have a combined capacity of 660,000 tonnes/year. Its 130,000 tonnes/year Altamira plant in Mexico supplies the US market.

But ABS prices have fallen despite previous production cuts. Fellow ABS producer SABIC Innovative Plastic also cut production by 20% as demand soured in the past quarter, particularly in the automotive sector.

With fewer orders, a flood of imports from Asia and continuous declines in feedstock butadiene (BD), ABS prices fell to 100-110 cents/lb ($2,205-2,425/tonne or €1,742-1,916/tonne) on 14 November, down by 20 cents/lb from the summer, according global chemical market intelligence service ICIS pricing.

It has been the same story throughout the chemical industry. An ammonia trader said the BASF news underlines the dramatic fall off in buying interest throughout the sector.

"There has been a collapse, not just in demand but in pricing as well," the trader said.

US market sources estimate that industrial consumers of ammonia have around 50% of their production capacity offline.

The benchmark US ammonia contract for Tampa delivery plunged to $350/tonne in November from $931/tonne in October, according to ICIS pricing.

Andrew Swanson, vice president of chemicals at US consulting firm Nexant, expects other companies to make similar announcements.

In the past three or four weeks, petrochemical prices have fallen well beyond levels that would be driven by crude oil and feedstock costs, Swanson said.

"This is a major contraction in demand that looks to be global," he said.

Overall, BASF’s move was prudent, Swanson said, a judgment echoed throughout the market.

“In general, I think it sounded very professional, as if they are very aware what is going on and taking appropriate measures without trying to create panic,” a benzene supplier said.  

($1 = €0.79)

Additional reporting by Stephen Burns, Landon Feller and Al Greenwood.

For more information on ABS, ammonia or butadiene, visit ICIS chemical intelligence
For more on BASF visit ICIS company intelligence
To discuss issues facing the chemical industry, go to ICIS connect

By: Ben Lefebvre
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