AnalysisBASF chems performance affirms solvents trends in Q1 2012

27 April 2012 15:44  [Source: ICIS news]

By Cuckoo James

LONDON (ICIS)--Income from operations in BASF's chemicals segment fell by 39% year on year to €467m in the first quarter of 2012, due to the negative impact of high raw material costs on margins, the Germany-based major said on Friday.

The results affirm first-quarter trends of rising prices and slow demand highlighted by analysts, and by industry sources active in buying and selling solvents, which form part of BASF's chemical output.

"Sales volumes decreased as a result of the optimisation of our supply chain for steam cracker products, carried out in the third quarter of 2011. Higher raw material costs resulted in declining margins, which led to earnings significantly below the very good level of the previous first quarter," the company said.

BASF's chemicals sector consists of inorganics, petrochemicals and intermediates divisions. In the petrochemicals segment of chemicals, sales grew "significantly" as a result of supplying raw materials to styrenics producer Styrolution, according to BASF.

"The optimisation of our supply chain for cracker products contributed to a decrease in volumes. Because of lower margins in all product lines, EBIT [earnings before interest and tax] before special items was significantly down," BASF said about performance at its petrochemicals segment.

"Margins declined because we could not fully pass on the high raw material costs to our customers," it added.

BASF's petrochemicals segment includes solvents such as glycol ethers butyl glycol (BGE), butyl di glycol (BDG), propanol methoxy (PM), glycol ether acetates such as propanol methoxy acetate (PMA), and esters such as butyl acetate (butac).

Raw material costs for these ether and ester solvents increased significantly in the first quarter, according to ICIS. Primary feedstocks ethylene and propylene increased by 17% and 18% respectively on average from January to March this year.

The significant hike in raw materials saw the prices of the solvents increase in the first quarter of 2012.

BGE prices increased by up to 12% from late December to end of March, while BDG prices rose by up to 11% in the same time period.

Total first-quarter price increases amount to €100-110/tonne for PM, and €90-100/tonne for PMA, representing a 6-7% rise.

Meanwhile, butac prices moved up by €70-90/tonne, accounting for a 6% rise in the first quarter.

Despite the rising solvents prices, plant utilisation for solvents were not at optimum levels in Europe partly because of a slow demand in the first quarter.

Demand for the solvents decreased by up to an estimated 15% in the first quarter, according to solvents industry sources.

BASF results show a year-on-year drop of 4% in sales volumes in the chemicals segment in the first quarter of 2012.

Despite the decrease in first-quarter chemicals profits, BASF's results affirm solvents industry feedback concerning an improvement in demand from the fourth quarter of last year.

The company’s net profit in the fourth quarter of 2011 was €1.13bn, lower than its current year first quarter net income of €1.72bn ($2.26bn).

($1 = €0.76)

By: Cuckoo James
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