INSIGHT: BASF will have to tap into new markets to reach Asia goals

05 June 2013 17:44  [Source: ICIS news]

(Re-casts: Adds detail in paragraph 14 explaining impact of accounting changes)

By Nigel Davis

LONDON (ICIS)--BASF has lowered its major market growth assumptions but stuck with its own top-line and profit targets for Asia-Pacific.

Acknowledging that a period of particularly strong GDP and industrial production growth may have come to an end for parts of the region, the chemicals giant wants to be generating much more in the way of sales and profits from its own local production operations and research effort and from new markets.

“In the next decade, Asia-Pacific will face huge challenges while remaining the fastest growing market for the chemical industry,” BASF’s executive board director with responsibility for Asia-Pacific, Martin Brudermuller said on 4 June.

“With our Asia-Pacific strategy, we are positioning BASF as the leading provider of sustainable solutions for the Asia-Pacific region.”

The company still intends to grow at two percentage points above chemicals market growth but sees the target as particularly challenging in the volatile market environment.

It had been clear that BASF wanted to grow fastest in Asia-Pacific and to push its research and development (R&D) effort in the region.

Now it will have to compete even harder for the sort of research and executive talent that will help its grow across a diverse group of countries including the powerhouse of chemicals demand, China. It will also need to address some challenging and hitherto relatively untapped markets.

BASF was one of the early movers in the chemical industry in recent years to establish an integrated production foothold in China. The BASF/Sinopec complex in Nanjing is one of the Germany-headquartered company’s “Verbund” or highly integrated, large-scale production platforms. China’s is the dominant chemicals market in Asia-Pacific.

The company thinks that China’s chemicals production, excluding pharmaceuticals in US dollar terms, will more than double between 2010 and 2020 to be worth some $986bn ($749bn). It also foresees a doubling of chemicals production in south Asia and a close to 8% a year output growth in the ASEAN (Association of South East Asia Nations).

The chemicals market in Asia-Pacific is dominated by local players, and in 2012 BASF was in a relatively lowly position of eighth in the market in terms of sales behind the by far most dominant player Sinopec and other industry giants such as Mitsubishi Chemical and Formosa Chemical.

As far as the projected goals are concerned, BASF says it wants to grow smartly with sustainable development in mind. It will invest €10bn in the region from 2013 to 2020 and create about 9,000 new jobs.

Its target is for €25bn of sales in Asia-Pacific by 2020 from €12.5bn in 2012, an average compound annual growth rate (CAGR) of 9%. Some €10bn of the additional sales growth will be made organically, it says.

The company’s targets have been moved somewhat since its major group strategy reassessment in 2011. At the time, following a strong, stimulus-led recovery for China and the chemical industry from the 2008-09 crash, BASF was suggesting that its sales to customers in Asia Pacific could reach €29bn in 2020, growth of about 8% a year from the 2010 base line.

A move to new financial reporting standards, announced in March this year, and principally the de-consolidation of certain joint ventures, means that 2020 sales targets at the group and lower levels have been changed.

The slowed China economy, particularly, must weigh on the numbers. BASF is basing its estimates now on China GDP growth of 9.9% a year.

The company talks about growing smartly across the region, pushing much more R&D effort into developing customer solutions and of using task forces to explore untapped markets.

Teams will focus on the top 10 most important industries, it says: automotive, construction, packaging, paints & coatings, pharma, mining food & agriculture, electrical & electronics, wind energy, and textiles.

Starting in south Asia, it wants to tackle what it calls “the base of the pyramid” in terms of spending power, the relatively poor and the emerging middle class.

It suggests that new business models are needed to penetrate new markets and might involve working with customers, non-governmental organisations (NGOs) and government agencies. Its initial focus will be on South Asia, starting in India, but the approach could be extended to ASEAN nations including Indonesia.

Task forces will investigate untapped markets in countries such as Myanmar, Cambodia, Laos and Mongolia.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Nigel Davis
+44 20 8652 3214

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