EPCA ’18: BASF alert to risk from possible global economic downturn

Author: Jonathan Lopez


VIENNA (ICIS)--The world economy may be taking a turn for the worse and BASF remains alert over any potential impact on its operations, the head of petrochemicals at the German chemical major said on Tuesday.

“The party will not continue forever,” said Hartwig Michels, referring to the latest International Monetary Fund (IMF) forecast published on Monday, in which it lowered its global growth projections for 2018 and 2019 on the back of trade war risks.

Michels mentioned how some emerging markets have also come under pressure, mentioning Turkey and Argentina, making it certainly a development about which “we need to be careful and stay alert”.

The BASF executive was speaking at a press conference organised by the European Petrochemicals Association (EPCA).

He declined to directly answer a question about China’s mounting levels of private and public debt, which some economic analysts are identifying as a risk factor for the global economy.

BASF is aiming to build a $10bn petrochemical complex in China’s Guangdong Province, its biggest investment to date.

Michels spoke about China’s new drive to clean up its air, which could affect energy-intensive petrochemicals players.

However, as the trade war between the country and the US may affect the economy, the government is relaxing some rules for polluting industries.

“Overall, the Chinese government is [currently] much stricter in enforcing environmental laws, and you see that in the supply chain … In that context, the government has defined a limited number of clusters which will take on the growth in petrochemicals,” he said.

BASF's planned investment in Guangdong would be one of those clusters.

“From a regulatory point of view, the Chinese government is getting stricter and stricter … What we see in principle is that rules are now being much more applied [and that has had a] major impact on key players.”

In an EPCA meeting in which sustainability issues and the circular economy feature high on the agenda, Michels said that petrochemical companies will need to “do a better job” at showing how they can lower their carbon dioxide (CO2) emissions and contribute to a true circular economy.

In the EU, CO2 emissions regulation under the Emissions Trading System (ETS) mandates polluting industrial players to buy credits for emissions, as a way to prompt them to lower them.

However, the German chemical trade group VCI – of which BASF is a prominent member – has said on numerous occasions the EU wants to regulate emissions too quickly and too much, and has demanded a global level playing field so the EU industry does not suffer a competitive disadvantage.

“CO2 emissions is something that we look at certain scenarios, and ask [ourselves] what we have to do to keep our licence to operate. We clearly expect regulation will be stricter, not more relaxed. The petrochemicals industry is looking at electrification … [But] we have the challenge of having enough electricity from renewable sources at a competitive cost,” said Michels.

A recurring complaint from petrochemical players in Europe is how the EU "overregulates", with many of them mentioning the stringent EU-wide Reach chemical regulation.

“There is always a risk of overregulation in the industry – we have to accept that is a challenge we have to cope with, but at the end of the day we have to do something [to lower emissions]: That has been digested by the industry.

“A global CO2 price would provide a level playing field. But that is not easy to achieve and as long as that does not happen, we need economic incentives. We as an industry have to demonstrate what can be done and what it takes from an economic perspective.

"But they [measures to lower emissions] have a price tag and that needs to be understood by policy makers.”

The annual EPCA meeting runs in Vienna on 8-10 October.