BASF’s chems growth to slow in H2, firm eyes battery market

Author: Jonathan Lopez


BASF Ludwigshafen panoramic. Source - BASF

LONDON (ICIS)--BASF's healthy growth in chemicals earnings during the first half of the year is unlikely to continue to the end of 2017, the German chemical major said on Thursday. 

Growth in the company's earnings before interest and taxes (EBIT) before special items is expected at 11% for the year as a whole, it said.

Following the publication of its second-quarter financial results earlier in the day, BASF’s CEO and CFO said the company is well placed to tap into the battery markets as electro mobility gains more traction in Europe following moves by some countries to ban combustion engines within 25 years.

Investors, however, received the positive financial results with scepticism and BASF’s share were losing 0.98% of their value by 10:30 London time, compared to their close on 26 July, to €80.44. The shares, however, had recovered earlier losses of up to 1.8%.  

Analysts at UK-based investment bank Barclays said the decreases in earnings at most of BASF’s divisions (only Chemicals and Oil & Gas reported increases in EBIT before special items) would weigh on the share price on Thursday.

BASF’s chemicals division posted healthy growth in sales, up 25% to €4.05bn, and earnings, with EBIT before special items more than doubling year on year to €1.12bn, but management conceded the stunning performance is unlikely to be repeated in coming quarters.

“[The chemicals division] is likely to lose momentum in the second half of the year…. [However] Overall there has been a gratifying improvement. There is no reason to be sceptical [about the chemicals division and] we should be in a situation to adjust prices downstream,” said BASF’s CEO, Kurt Bock.

However, BASF’s executives did not clarify how the company’s capacity additions had affected its sales volumes during the second quarter, which for the company overall rose by only 3% during the period, year on year, a much lower percentage growth than that registered by some other chemical companies in Europe.  

The firm only said its capacity additions in Asia overall had helped the chemicals division.

BASF’s toluene di-isocyanate (TDI) 300,000 tonne/year plant at its Ludwigshafen site is far from running at full capacity, management confirmed on Thursday, after a series of hiccups delayed its start up and then caused unplanned maintenance due to a damaged reactor.

“The TDI plant is up and running [but] we don’t publish [utilisation] rates. We had to replace a reactor and at the time [the plant wasn’t running] at full capacity [but that was] no problem from a market point of view,” said the company’s CEO.

The company said its diminished oil and gas operations were still a central part of its portfolio, and defended Russia as a key provider to the European gas markets.

The company gets a third of its gas from Russia, said management, who praised the Nord Stream pipeline and the "stability" in supply it has facilitated. The comments came as Nord Stream 2 – which BASF and other large oil and chemical majors are privately financing – has run into controversy in past months.  

As the US Senate prepares to increase sanctions in Russia after the supposed involvement of that country in the Presidential election in November, BASF’s management said the EU and the US should coordinate their strategies, as unilateral action from the US could harm European supply.

BASF also said in a press conference from its flagship site of Ludwigshafen that the mulled propylene plant in the US is unlikely to be built, at least for the time being.

“Nothing new on the propylene [plant] – we have not made a decision simply because we don’t see circumstances in the market justifying a project,” said Bock.

A joint venture with Norway’s fertilizers major Yara for construction of a large-scale ammonia plant is on track, however. A final investment decision on the investment is expected in the fourth quarter.

On electric mobility, the company said it continues negotiations with Russia’s Norilsk Nickel to import nickel and cobalt for use in batteries, as the electric vehicle industry grows.

The German chemical major said it has the technologies and the capital to tap into that market, but would not give more details on the Norilsk deal.

BASF will invest €400m in a project to produce cathode materials.

On the agricultural business, BASF said Latin America – and in particularly Brazil – had had a poor performance in the second quarter – as the winter in the southern hemisphere kicked in – but said sales in North America had been healthy.

Manangement also gave an update on repair work at Ludwigshafen after the October 2016 explosion and fire which killed three. The executives told analysts in an investor call on Thursday that supply conditions after repair works would normalise by the end of the third quarter.

BASF’s CEO said he did not have “much information” about the anti-trust operation disclosed on 26 July by the EU’s executive body, the European Commission, aimed at ethylene buyers in the region. 

According to the Commission, several ethylene buyers were inspected on 16 May.

US- and Switzerland-based producers Celanese and Clariant said they were among the companies inspected.  

“We produce ethylene [and] there are prices and these prices are publicly listed and announced publicly via information services,” said Bock.

ICIS is one of the price reporting agencies which tracks ethylene spot and contract prices.

“The expert media questioned [in past months] how representative these public prices are for the relevant market. That’s a rather academic discussion and goes via demand and supply.”

Asked whether business in Turkey has become more difficult after the attempted coup d’etat in July 2016, which caused a clampdown on opposition figures as well as civil servants, BASF’s CEO reiterated that the rule of law is key to have stable business conditions.

BASF has 800 employees in Turkey and in past weeks the firm was embroiled in a controversy disclosed by a German newspaper. According to that report, BASF would have been targeted by the Turkish government as a supporter of an opposition US-exiled cleric.

The Turkish government categorically denied that.

However, on the political conditions in the country, Bock said: “We have made this publicly known [before]: For investment [to thrive] you need stable conditions and the rule of law.”

Pictured above: BASF's Ludwigshafen site in Germany
Source: BASF