BASF chems division’s booming margins to fall, high prices ‘not new normal’ – BASF chief

LONDON (ICIS)–Booming selling prices and margins in 2021 are set to fall in coming quarters as the high inflationary environment for materials will not be “the new normal”, the CEO at Germany’s chemicals major BASF said on Wednesday.

The company’s commodity chemicals portfolio had enjoyed “much higher” margins during 2021, compared to long-term average, but once demand and supply adjust a correction downwards is bound to happen, company chief Martin Brudermuller said.

BASF published earlier on Wednesday third-quarter financial results, with sales and earnings shooting up year on year.

During the quarter, the company managed to implement selling prices 36% higher than a year earlier, it said, while sales volumes rose 6%; the increases were especially healthy in Chemicals, Materials, and Industrial Solutions divisions.

In the Chemicals division, selling prices in the third quarter rose by 95%, year on year, while sales volumes rose by 12%. In Materials, selling prices rose by 41% and volumes by 7%. Between the two, the make up more than 50% of the total sales during the quarter.

“We can’t expect this is the new normal. At some point, when we have a better adjustment of demand and availability, there will some correction [downward of selling prices and margins]. We can expect the peak to remain for a long time,” said Brudermuller.

GAS, SEMICONDUCTORS
The company also disclosed that, for the year to September, the hit from high natural gas prices stood at €600m, input costs it expects to rise further in the fourth quarter as prices for that commodity remain well above the levels of the last quarter of 2020.

“Our downstream businesses are still confronted with further rising raw material, energy and freight costs. Price increases in most downstream businesses could only partially offset these higher costs. In addition, higher fixed costs weighed on earnings,” said the company.

“The semiconductor shortage severely hampered the global automotive industry in the third quarter. Shutdowns and lower run rates in production have negatively impacted our automotive-related businesses, particularly in the Surface Technologies segment.”

BASF cited statistics from LMC Automotive at the beginning of the year projecting global production of vehicles would stand in 2021 at 87.6m units, but those figures have been updated to just below 77m units.

“We also cannot rule out the possibility of production of only 75m vehicles this year … We expect the semiconductor shortage to persist, at least in the first half of 2022,” said BASF.

GERMAN COALITION
Following the inconclusive general election in Gemmary in September, BASF’s CEO said he was pleased to see negotiations to form a government, likely to be formed by the social democrats at the SPD, the Green Party, and the liberals at FDP.

While taxes for citizens and corporates may not rise due to the presence of the FDP in the coalition, climate change-fighting policies are likely to increase, which could increase costs for energy-intensive sectors like chemicals.

Germany’s trade group VCI, of which BASF is a key member, has demanded higher investments from the state on green and digital economy as well as lower taxes for corporates.

Brudermuller said you “never like 100%” of what a party has to offer, but he was pleased the negotiations for the coalition government do not seem likely to drag until Christmas or beyond, as some analysts had predicted.

“I am positive, and I hope they will stay in dialogue with us. I have said it time and again: policymakers cannot only put regulation on the table for us and tell us to go ahead implementing,” said Brudermuller.

“We need a new collaboration [for the new greener economy] and the devil will be in the details of the how [to achieve carbon emissions neutrality by 2050, in line with the EU’s Green Deal],” said Brudermuller.”