30 October 2009 16:00 [Source: ICIS news]
By Nigel Davis
It will still take a lot - concerted and continued action by governments and industries - to beat this crisis. Hambrecht does not see an easy way out.
BASF does not and, indeed, cannot, expect too much. It sees global economic contraction of 2.5% this year and industrial production down 9.0%. Chemicals production, excluding pharmaceuticals, is likely to fall by 6.0%. It is working on an average 1.4 euro/dollar exchange rate and an average oil price of $60/bbl.
True, there are signs of growth. But just what is real growth and what has been driven by unexpected plant shutdowns in an already depressed operating environment? BASF is not talking operating rates this time round. It has seen some businesses in some regions come off the bottom, but its outlook, principally for Europe and for
BASF’s business has “stabilised at a low level”, Hambrecht said in the company’s quarterly statement. In a later conference call he said that little attention was being paid to structural overcapacities.
He warned that the effects of stimulus packages are starting to peter out, many companies are dealing with financing problems, the number of bankruptcies is increasing and unemployment is rising. The targets for these remarks were not only his immediate audience in the financial and chemical community, but domestic and other politicians that might influence events and the company’s customer industries.
This downturn, more than any other, has highlighted the interconnectedness of so much of the chemicals sector, not simply with itself but with important customer industries.
BASF’s third-quarter sales were down 23% in Europe and operating profits in the region were hit by a weaker performance from oil and gas.
There has to be concern that with stimulus packages coming to an end and persistent global economic uncertainty, that business will suffer in the fourth quarter and into 2010.
BASF says its customers are still buying on a short-term basis. “Our customers are still placing smaller orders at increasingly short notice, especially closer to the end of the year,” Hambrecht said.
“Although we are coming out of the trough the crisis is by no means over,” he stressed.
From the current standpoint, Hambrecht is not alone in only being able to predict a very slow recovery and one that is already proving to be uneven.
“We really are at a nadir,” he said as he cautioned that growth rates at the 2008 level might not be seen until 2012.
BASF can only slowly ramp its production capacities back up again as customers gain more confidence in their own new orders. In many respects, the company is more closely tied to customers in end-user markets than ever before and as a result will feel the impact of an upturn at a somewhat later stage in the cycle than perhaps it might have before.
“It looks as if in
BASF is not alone in having plants running still at low operating rates. It has 1,200 employees on short-time working and expects to have to use the system into 2010 as a tool for managing the downturn.
The BASF CEO’s remarks and the company’s views suggest that the recovery across a broad swathe of the chemical industry will be a slow and still difficult process.
For more on BASF visit ICIS company intelligence
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