Isocyanates, cracker margins, weaker demand weigh on BASF 2019 chemicals earnings

Ludwigshafen, GERMANY (ICIS)–Weaker isocyanates pricing, cracker margins and softer demand slashed BASF chemicals and materials division earnings in 2019, the Germany-headquartered producer said on Friday.

Combined chemicals and materials division earnings before interest and taxes (EBIT) before special items fell €2.2bn year on year in 2019 to €1.8bn, with the sharp drop in isocyanates pricing, weaker cracker margins, and bearish demand all weighing on the divisions.

“We increased our earnings in all downstream segments despite the difficult market environment. Unfortunately, this could not offset the decline in the basic chemicals business,” said BASF CEO Martin Brudermueller.

(€m)	2019	2018	Change (%)
Revenue	59,316	60,220	-1.5
EBIT before special items	4,536	6,281	-28
Net income	8,421	4,707	79

EBIT before special items firmed for all other divisions during the year, with industrial solutions and surface chemicals earnings benefited from firmer margins.

Agrochemicals division earnings jumped nearly 50% as the BASF backed the decision to purchase the portfolio of assets from Bayer despite a US court recently finding against the two companies in a lawsuit over herbicide dicamba.

“The assets and businesses acquired from Bayer performed very well,” Brudermueller said.

After posting a drop in EBIT before special items of 28% during year, in line with the levels guided for in a profit warning issued in mid-2019, the company expects earnings of €4.2bn-4.8bn for 2020 compared to €4.5bn last year and €6.3bn in 2018.

(€m)	Q4 2019	Q4 2018	Change (%)
Revenue	14,686	14,985	-2
EBIT before special items	765	621	23
Net income	150	348	-57

Global GDP growth is likely to slow substantially this year, to 2% compared to 2.6% in 2019, Brudermueller said, with chemicals production growth to drop 0.6 percentage points to 1.2%, the lowest expansion since the financial crisis of 2008-9.

Coronavirus is likely to have a significant impact in the first half of the year, and little rebound is expected in the automotive sector, according to the company.

After the agreement of the first phase of a resolution to the US-China trade war dispute earlier this year, BASF is not expecting further easing of the conflict this year.

Front page picture: View of a storage tank at BASF’s Ludwigshafen site; archive image
Source: Ronald Wittek/EPA-EFE/Shutterstock