UpdateBASF cuts global output as demand drops

19 November 2008 17:38 [Source: ICIS news]

BASF LONDON (ICIS news)--BASF issued a reduced full-year profits outlook on Wednesday saying it had been hit by a “massive decline" in demand and had been forced to temporarily shut down 80 plants worldwide.

The Germany-based chemicals giant said it was also reducing production at about 100 plants worldwide in an attempt to avoid the creation of overcapacities. Scheduled maintenance was being brought forward, it said.

Europe was set bear the brunt of the shutdowns, with 50 of the total planned closures in the region, compared with 20 in Asia and 10 in North America.

Cutbacks had previously been announced for polystyrene and caprolactam.

“We already drew attention to the difficult economic situation at the end of October. Since then, customer demand in key markets has declined significantly,” said executive board chairman Jurgen Hambrecht.

“In particular, customers in the automotive industry have cancelled orders at short notice,” he said.

In addition, sales volumes are being negatively impacted by increased reduction of inventory by customers and a lack of credit in customer industries, BASF added.

“In 2008, BASF will therefore not achieve the previous year’s excellent EBIT [earnings before interest and tax] before special items. How the coming year will develop is difficult to foresee. BASF is preparing for tough times,” Hambrecht added.

Investors reacted to the announcement as BASF’s share price closed 13.65% lower than Tuesday at €21.96.

The shutdowns and production cutbacks mainly affect businesses selling into the automotive, construction and textile industries, BASF said.

Value chains affected include ammonia, styrene and polyamide, which manufacture precursors for engineering plastics, coatings and fibres, it added.

The shutdowns will be coordinated throughout BASF’s global production network or Verbund and will involve all six of its integrated sites in Europe, Asia and North America, as well as other sites, the company added.

Capacity reductions are likely to last until January 2009 for individual plants, it said. Short-time working for individual sites worldwide beyond that could not be ruled out, BASF added.

Should the period of weak demand continue and if all other flexible working time models had been exhausted, the company cannot rule out the need for short-time working at individual sites worldwide.

About 20,000 employees will be affected by the production cuts with flexible working time arrangements being used wherever possible.

BASF said it would continue to monitor market developments closely and did not rule out further production cutbacks

“We are realistic, but we are nevertheless confident when we look to the future,” said Hambrecht. BASF had been made more resilient, he added.

“The strength of our better balanced portfolio makes itself apparent in the current difficult situation. We are solidly financed, and we have the best team on board to navigate the route ahead successfully.”

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By: Nigel Davis
+44 20 8652 3214

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