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BASF navigates low-growth environment as China Verbund spending continues
LONDON (ICIS)–As BASF prepares to provide more detail on its 2023 financial performance, the Germany-based chemicals major is to navigate the still-chilly waters of 2024 as spending on its flagship China Verbund site in Zhanjiang continues and project pipelines face ever-tougher scrutiny. The company will release its fourth-quarter and full-year results on 23 February but has been careful to manage expectations, cutting its full-year guidance several times ahead of the end of year reporting date and releasing 2023 performance figures in January. PERFORMANCE Revised projections of full-year earnings before interest, taxes (EBIT) and special items of €3.9bn were cut further to €3.81bn, a decline of over 44% year on year, even when comparing against the historically difficult energy price environment of late 2022. in € millions* 2023 2022 % Change Group Sales 68,902 87,327 -21.1 EBIT before special items 3,806 6,878 -44.7 EBIT 2,240 6,548 -65.8 Net income 225 -627 According to analyst Konstantin Wiechert at Baader Bank, the revised projections for full-year earnings indicate that conditions may have softened further at the end of the year as, going by previous quarterly results, the company was on track to meet its targets before then. “According to the company before knowing the December figures it still looked like [EBIT pre-specials] guidance of ~€3.9bn could be achieved, so it is likely one month that really was below expectations,” he said, speaking in January. SPENDING The company has set out plans to cut its capital expenditure budget for 2023 to 2027 by €4bn to €24.8bn, with €1bn of the total of the savings expected to have been found last year and the rest in the 2024-27 period. BASF is expected to announce its 2024-27 capex expectations on Friday, but this year and next are expected to be expensive as the concluding work on its Zhanjiang Verbund site continues. Interest rates in China did not soar to the levels seen in Europe over the last two years, and the country’s slow rebound after lifting zero-COVID restrictions means that labour costs in the country, which led to favourable pricing for workers, according to CEO Martin Brudermuller. Nevertheless, work on the Zhanjiang complex means the spending could be robust over the next two years, according to remarks made by Brudermuller on a December investor call. “You optimize a little bit here and there in these two years of heavy investment coming in 2024 and 2025, but it will not change anything in that we have to finish the whole project as such,” he said. “You cannot build 80% of a Verbund and leave the remaining 20%.” Brudermuller has hinted that some manoeuvrability on budget may be achieved by a harsher look at BASF’s project pipeline elsewhere. “We have more projects than money, so that ensures a certain amount of competition,” Brudermuller said in December. “But that is now certainly increasing when we reduce the money available. So, there are more projects, and we look very clearly to see which are the profitable ones, where are some must haves.” Investors and employees will be watching on Friday for news of any further consolidation in its European asset base. PROJECT PIPELINE Another focus for the financial community, given the relative immutability of Zhanjiang spending this year, will be on capex expectations elsewhere, according to Sebastian Bray, a chemicals analyst at Berenberg. “Management comments around capex and working capital in 2024 may prove influential for the share price movement on the day. I believe capex much in excess of €6 billion or comments that working capital improvements recorded in 2023 are largely ‘finished’ may be taken negatively; the converse also holds, in my view,” he added. ECONOMY The start of the year has seen fairly widespread upticks in pricing across European chemicals markets as a result of disruption to global shipping as a result of tensions in the Red Sea that have limited imports and buoyed domestic demand. The EU in general has become less reliant on imports, with the balance of trade for key products in 2023 firming as a result of the contraction in exports being smaller than the decline in goods volumes flowing into the region. Nevertheless, markets continue to pin hopes on interest rates and inflation as the key drivers of 2024 prosperity, with central bank rate cuts perceived as crucial to allowing a more pronounced recovery to develop. Expectations remain that substantial cuts to rates may only be introduced in the second half of the year, meaning that investor sentiment remains bearish. “I think the swing factor on [BASF] results will be cash flow as much as earnings outlook, where the market has settled into a consensus of a grinding, H2-weighted recovery. 2024 will be a year of high capex for BASF, which may temporarily necessitate funding the dividend out of reserves or divestment proceeds,” he said. According to Brudermuller, the European chemicals industry has lost 25% of its volumes since the onset of the Russia-Ukraine war, with some of that due to energy pricing and cheaper product elsewhere, and part due to lower orders due to customers’ own woes. “I would expect that capacities are lost for good in the European chemical industry.,” Brudermuller said in January. …The industry is still lagging a bit behind reality. I would expect that we will see some movement in the industry in 2024,” he added. Conditions in Europe are gradually thawing, with optimism ticking up, the general trend continuing toward inflation cooling in spite of the impact of the Red Sea crisis, and eurozone private sector activity drawing closer to stabilising. With little signs of a substantial rebound in underlying demand conditions, the first half of the year may remain difficult for the sector, prompting strict discipline on spending. “Without giving guidance now, we have said that the start to 2024 will not be easy. I think that the closer we get to 2024, the more likely it looks that 2024 will be another difficult year,” Brudermuller said. Focus article by Tom Brown Thumbnail image shows flags flying at BASF headquarters, Ludwigshafen, Germany (picture credit: RONALD WITTEK/EPA-EFE/Shutterstock)
Germany announces up to €3.53bn funding for hydrogen production, derivatives import
BMWK funding for Climate and Transformation Fund for 2027-2036 Dutch partnership accelerated to open up further import opportunities Details on new funding being ironed out, more info to follow additional reporting by Gary Hornby LONDON (ICIS)–The German Federal Ministry for Economic Affairs and Climate Action (BMWK) have announced additional funding of up to €3.53bn from the Climate and Transformation Fund. The funding will be over a ten-year period beginning in 2027 and ending in 2036, and will be aimed at procuring renewable hydrogen and its derivatives from other global regions. Germany is forecasting hydrogen demand within the country could reach as high as 130TWh by the end of the decade, more than double current levels, and is set to be at least 50%-reliant on imports to manage domestic demand for the fuel. Some of these imports are due to arrive in the Netherlands before being shipped via pipeline into Germany, with the Netherlands seeing Germany as a key export market for hydrogen moving forward in the country’s national hydrogen strategy. “In close cooperation with the European Hydrogen Bank (EHB), we are accelerating the hydrogen ramp-up together with the Netherlands and opening up attractive cooperation opportunities for partner countries,” BMWK said in the press release. BMWK said that the core idea of the funding is a “double auction model” which will bridge the difference between the higher price of hydrogen on the global market and the lower price at which hydrogen can be resold regionally. In June 2023, the German government’s decision to link the EHB with the H2Global instrument developed by Germany for the market ramp-up was seen as a major step towards securing hydrogen financial needs across the country and wider continent.
Japan flash Feb manufacturing PMI falls to 47.2 on steep new orders decline
SINGAPORE (ICIS)–Japan’s manufacturing purchasing managers’ index (PMI) fell to 47.2 in February from 48.0 in January after a strong decline in new orders, flash estimates from au Jibun Bank showed on Thursday. A PMI reading above 50 indicates expansion while a lower number denotes contraction. The drop in new orders led to a production shrinking at the fastest rate in a year and signalled a ninth consecutive deterioration in the PMI that was the most marked since August 2020, it said in a statement. Purchasing activity at Japanese manufacturers fell sharply in February, while lower capacity pressures led to employment levels falling at the quickest pace since January 2021. “Price pressures faced by Japanese manufacturers softened during February, as the rate of input inflation eased to a seven-month low,” au Jibun Bank said. Japan’s economy was in technical recession after contracting for a second consecutive quarter from the 3.3% fall recorded in July-September 2023, amid sustained weakness in private consumption and business spending.

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Brazil’s Unigel gets green light from creditors for debt restructuring
SAO PAULO (ICIS)–Unigel has agreed a Brazilian reais (R) 3.9 billion ($791 million) debt restructuring with its creditors, which has saved the beleaguered styrenics, acrylics and fertilizer producer from filing for bankruptcy for the time being. The agreement includes raising a new $100 million credit line that will mature in 2027, and give its shareholders “economic benefits corresponding” to 50% of the company, it said. An intention to improve the company’s governance structure is also included, although Unigel did not disclose further details. The restructuring will consist of the issuance of new debt securities and participatory securities in exchange for the cancellation of current debts. One-third of Unigel’s creditors, those with earlier maturities, have agreed to the deal and will apply for 90-day protection to finalize it, which has been made possible under Brazil’s financial laws. “The plan will allow the improvement of the company’s capital structure, with an increase in its liquidity and a significant reduction in leverage, in order to guarantee the continuity of the business plan that was severely impacted by the crisis in the global petrochemical industry,” said Unigel’s CEO, Roberto Noronha. CFO André Gaia said the new funds will be partly directed to finalizing projects such as Unigel’s sulphuric acid plant at Camacari in the state of Bahia. Construction has been on hold since 2023 when the company’s financial position deteriorated. The plant is 80% complete, and when fully operational it should produce around 450,000 tonnes/year. REVIVALUnigel’s fortunes took a turn for the worse in 2023 on the back of high input costs – especially at its natural gas-intensive fertilizer operations – poor demand and low prices. It has not published a financial report since Q1 2023, something contemplated under Brazilian financial law for companies under stress. After a poor Q1, Fitch and S&P both lowered the company’s credit ratings several times and put Unigel’s debt obligations at the lowest level to indicate a high probability of default. However, “intense negotiations” with creditors that began in October, after Unigel failed to pay a coupon on one of its bonds, appeared to bear fruit in November when it reversed its decision to shut down the Bahia fertilizers plant. For that to take place, Unigel’s talks with its creditors were accompanied by talks with the government and its appointees to lead the state-owned energy major Petrobras, which supplies natural gas to Unigel. President Luiz Inacio Lula da Silva has repeatedly said that Brazil needs a stronger fertilizer industry as is too dependent on imports to cover booming demand from its growing agricultural sector.  The sector has made Brazil one of the world’s breadbaskets and accounts for around a quarter of the country’s output. Although details have not been made public, in December, the two companies agreed a tolling agreement for Unigel’s fertilizers plants in Camacari and Laranjeiras, in the state of Sergipe. The two plants were leased from Petrobras in 2019. Capacity at the Bahia plant is 475,000 tonnes/year for ammonia and 475,000 tonnes/year for urea. The Laranjeiras facility has a capacity of 650,000 tonnes/year of urea, 450,000 tonnes/year of ammonia, and 320,000 tonnes/year of ammonium sulphate (AS). The Petrobras-Unigel agreement in December came just weeks after Unigel charged Petrobras for its “unbearable natural gas prices” when it explained to workers at the Camacari plant about redundancies resulting from its closure. As part of the talks with its creditors, Unigel divested its Mexican subsidiary which produces acrylic sheet Plastiglas for an undisclosed amount in December. With an expected improvement in chemicals and fertilizers prices and a helping hand from Petrobras and/or the Brazilian government, Unigel may have managed to avoid a bankruptcy which many had taken for granted a few months ago. At the annual meeting of the Latin American Petrochemical and Chemical Association (APLA), held in Sao Paulo in November, one petrochemicals source foresaw this week’s events. “Unigel has been in financial trouble many times before, and it always got through them. This time looks bad, but it may yet again save the day,” the source said. Focus article by Jonathan Lopez Thumbnail shows Brazilian money. Image by RHJPhtotos.
PODCAST: How Red Sea and Panama Canal troubles influence chemicals and LNG
BARCELONA (ICIS)–Chemicals and liquefied natural gas (LNG) players are switching from a global to a more regional approach to their markets as logistics challenges caused by the Red Sea attacks and Panama Canal drought persist. Red Sea disruption may not end until 2025 Some US chemical prices rising as Panama Canal restrictions continue Poor downstream demand caps increases Europe isocyanates and polyols react to logistics pressures Margins rising for European producers as purchasers switch to local sourcing LNG prices are falling despite logistics disruption LNG markets now becoming more regional LNG globally expected to be oversupplied by 2027-2028 as wave of new capacity starts up In this Think Tank podcast, Will Beacham interviews Ed Cox, ICIS senior editor for LNG, Umberto Torresan, ICIS analyst for isocyanates and polyols, and Adam Yanelli, ICIS senior news reporter. Visit the ICIS Logistics: impact on chemical and energy markets Topic Page. Editor’s note: This podcast is an opinion piece. The views expressed are those of the presenter and interviewees, and do not necessarily represent those of ICIS. ICIS is organising regular updates to help the industry understand current market trends. Register here. Read the latest issue of ICIS Chemical Business. Read Paul Hodges and John Richardson’s ICIS blogs.
PODCAST: Can sustainable fuels help to decarbonise the transport sector?
Deputy Crude Editor Cecilia Barreiro and Energy Market Reporter Eloise Radley sit down with Market Editors, Nazif Nazmul and Shruti Salwan to discuss the evolution of the transport sector. Are sustainable fuels the answer to decarbonising transportation? Or is there a lack of support in Europe? Join us as we address the current use of biofuels and sustainable aviation fuel in Europe, policy and challenges.
PODCAST: Asian olefins to see support amid tighter supply, Panama congestion persists
SINGAPORE (ICIS)–Asia’s ethylene (C2) market saw supply tighten amid fewer volumes from the US in Q1 as a direct result of congestion at the Panama Canal. Over in the Asian propylene (C3) markets, while arbitrage flows remain curtailed by high freight rates, some emerging interest has been gleaned in the market as regards moving Asian material westwards. In this podcast, ICIS market editors Josh Quah  and Julia Tan discuss Asia’s olefins flows, with a forward view on the March market. C2 sees support from constrained deep-sea supply NE Asia C2 and C3 outlooks for March Impact of shipping congestion on olefin trade flows
Saudi Arabia’s December oil exports fall 16%; total shipments down 9.7%
SINGAPORE (ICIS)–Saudi Arabia’s oil exports in December declined by 15.8% year on year to riyal (SR) 72.0bn ($19.2bn) amid output cuts, with its share to total overseas shipments slipping by 5.3 percentage points to 73.1%, official data showed on Wednesday. Overall exports for the last month of 2023 declined by 9.7% year on year to SR98.5bn, according to the Saudi Arabia’s General Authority for Statistics. The country, which is the biggest crude exporter in the world and the de facto leader of oil cartel OPEC, has extended its voluntary oil production cut of 1m bbl/day by another three months to March 2024 amid the global economic slowdown. Meanwhile, Saudi Arabia’s non-oil exports (including re-exports) in December 2023 grew by 12.0% year on year to SR26.5bn, with shipments of products of chemical and allied industries posting a 5.5% increase, while those categorized under “plastics, rubber and articles thereof” fell by 7.6%. These two categories accounted for a combined 53.7% of Saudi Arabia’s total non-oil merchandise exports in December. China was Saudi Arabia’s biggest trading partner in December, with about a 15% share to total exports, followed by Japan and India, with shares of 11.0% and 8.8%. respectively. Total merchandise imports for the month declined by 7.1% year on year to SR60.4bn. ($1 = SR3.75)
Japan January chemical exports up 11%; overall shipments at record high
SINGAPORE (ICIS)–Japan’s chemical shipments in January rose by 11.2% year on year to yen (Y) 865.9bn ($5.8bn), with overall exports hitting a record high for the month, thus, easing some concerns over Asia’s highly industrialised economy which tipped into a technical recession in the second half of 2023. Automobile exports up 16% year on year Shipments to the US, China post double-digit growths Japan loses position to Germany as world’s third-largest economy in 2023 January exports of organic chemicals rose by 16.5% year on year to Y169.5bn, while shipments of plastic materials were up by 16.1% at Y221.3bn, preliminary data from Japan’s Ministry of Finance (MOF) showed. By volume, exports of plastic materials were up by 10.5% at 377,957 tonnes, the ministry said in a statement. Overall exports in January rose by 11.9% year on year to Y7.33tr, while imports declined by 9.6% at Y9.09tr, resulting in a monthly trade deficit of Y1.76tr. Total shipments to the US, Japan’s largest export market in January, rose by 15.6% year on year, while those to China were up by 29.2%. The increase in overall exports last month was supported by the 16.1% year on year in increase in motor vehicles to Y1.18tr. Japan is the world’s biggest car exporter. EXPORTS FUEL RECOVERY HOPES The robust exports data for January could provide a potential buffer against any further contraction of the economy, which shrank at an annualized pace of 0.4% in the last three months of 2023. The economy was in technical recession after contracting for a second consecutive quarter from the 3.3% fall recorded in July-September 2023, amid sustained weakness in private consumption and business spending. Private spending, the largest component of Japan’s GDP, declined by 0.2% quarter on quarter in October-December 2023, marking its third straight quarter of decline. “Rising inflation continues to weigh on consumer spending,” banking group Citi said in a note. “However, the Bank of Japan does not appear to be too concerned about the recent weakness of private consumption, saying that strong wage hikes this spring would likely improve the household income environment going forward.” On a year-on-year basis, Japan posted a Q4 GDP growth of 1.0% year on year, markedly slower than the growth seen in the previous two preceding quarters. In real terms, the size of the economy shrank slightly to Y557.3tr in Q4 2023 but was higher than pre-pandemic peak of Y556.3tr in Q2 2019, Singapore-based UOB Global Economics & Markets Research said in a note. “However, in [US] dollar terms, with the significant weakening of the yen, Japan lost its position as the third largest economy, being overtaken by Germany,” it said. In 2023, the Japanese yen slumped by around 11% in value against the US dollar, posting the biggest decline among other major currencies, as the Bank of Japan maintained its key interest rate at -0.1%, while others, led by the US, had had aggressively increased rates in a bid to temper inflation. A weaker currency, however, is a boon for exports. At 04:38 GMT, the yen was trading at Y149.96 against the US dollar, after weakening past Y150 on 13 February for the first time since November last year. The yen had weakened to an all-time low of Y151.655 against the greenback on 14 November 2023. Focus article by Nurluqman Suratman Thumbnail image: Japan’s 10,000-yen notes and US’ $10 notes – 6 June 2016 (Franck Robichon/EPA/Shutterstock)
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