LONDON (ICIS)--BASF is pressing ahead with its key multi-billion euro growth projects, particularly its planned China Verbund site and battery technology sites in Europe, CEO Martin Brudermuller said on Wednesday, despite the need to cut costs in the wake of the coronavirus pandemic.
The growth potential of the projects justifies the scale of the expenditure, Brudermuller said, despite the push to generate €2bn of earnings before interest, taxes, depreciation and amortisation (EBITDA) from the end of 2021 from cost-cutting.
“If you talk about long-term projections on the growth opportunities of a company, you cannot change that, just because of coronavirus,” he said, speaking at a press conference on Wednesday.
Brudermuller said on February that the company expects to spend €23.6bn on growth projects through to 2024, with the complex planned in Guangdong, China, to absorb over a third of that funding.
Ratings agency Moody’s projected in June that BASF would post €1bn negative cash flow this year, expanding to €2bn next year, driven in part by the peak investment phase for the Guangdong Verbund site.
BASF’s Verbund sites are those where production, market platforms and technologies are integrated, linking all businesses together; its flagship Verbund is located in Ludwigshafen, Germany.
The fundamentals of the Guangdong project justify the cost, Brudermueller said, claiming that the coronavirus pandemic has accelerated China’s focus on developing domestic independence for key chemicals.
“If you look at the Chinese data about the market size and share of global chemicals market, that looks even better than it did pre-coronavirus because there’s a very strong focus now on the domestic market, a re-steering from export-driven to a domestic economy, that will all be positive for long-term demand,” he said.
China has accomplished a V-shaped recovery since the lockdown-driven demand trough seen earlier in the year and the country is a significant earnings driver for BASF at present, with double-digit volume growth in each month of the third quarter from Greater China for most business divisions, he said.
Plans to invest in battery materials production capacity in Schwarzheide, Germany, and Harjavalta, Finland, remain on track, with macroeconomic drivers for the sector continuing strong, Brudermuller added.
“No question that a tipping point for electric cars was reached and this is very strong growth market,” he said.
The BASF chief was more circumspect on whether a potential production complex in India would move forward.
The company signed a memorandum of understanding with Borealis, Adani and ADNOC in October 2019 to evaluate the potential to jointly develop a large complex in the country.
Front page picture: BASF's projected site
in Guangdong, China