Market intelligence: BASF sees improvement in 2014

28 February 2014 09:50 Source:ICIS Chemical Business

Higher oil & gas and agricultural products volumes pushed BASF’s sales up last year by 3% to €74.0bn as the company struggled against economic headwinds across the rest of its portfolio. The problem for the world’s largest chemical company, and for most other producers in the sector, was the lack of growth in important downstream industries and markets.

But just as those sectors didn’t produce the goods, in more ways than one, in 2013, they may help lift BASF and others in 2014.

“We aim to increase our sales volumes excluding the effects of acquisitions and divestitures. Nonetheless, sales are likely to decline slightly compared with 2013, due to the divestiture of the gas trading and storage business planned for the middle of 2014,” the company said.

The Germany-headquartered chemicals giant is cautiously optimistic for 2014. While not being specific in its outlook, BASF does talk about stronger, cyclical, electronics industry demand, and stronger demand for products sold into the transportation sector and into consumer goods manufacture.

“We do not expect strong tailwinds this year either. Nevertheless, we are cautiously optimistic with regards to global economic development. The world economy is expected to grow slightly faster in 2014 than in 2013, despite continuing volatility,” said BASF chairman and CEO Kurt Bock.

Overall, the company is projecting 2014 industrial production (IP) growth of 3.7% compared with IP growth of just 2.5% in 2013. It sees transportation sector demand swinging back after a slump in 2013 and likewise stronger growth in the electronics industry, especially in the emerging markets in Asia, in Japan and in the US.

The company appears to be particularly keen on chemicals growth in the US where it expects the chemicals production recovery to continue to be driven by “robust growth in the automobile industry, the construction sector and other key customer industries”. The upward trend in US chemicals output will be boosted by the country’s low energy and raw material cost position.

BASF doesn’t see much in the way of chemicals production growth from the EU in 2014, however, the region where it does most of its business. It even expects output in Spain and Italy to stagnate or possibly decrease.

And chemicals demand from Asia, outside Japan, will be weaker than in 2013, it suggests, because of the economic and market consolidation expected in China.

The company said chemicals segment sales will increase only slightly this year, with some growth for petrochemicals driven by new plant start-ups and higher sales volumes for its monomers division, particularly for isocyanates as it brings its new methyl di-p phenylene isocyanate (MDI) plant in China on stream. Intermediates demand will be driven by the important automotive, crop protection and textile 
fibre industries.

BASF also sees slight sales gains for its performance products, and functional materials and solutions segments, and a considerable increase in its agricultural solutions segment.

BASF also expects overall adjusted earnings before interest and tax (EBIT) to rise slightly in 2014 from €7.2bn in 2013, which was up 8% versus 2012.

BASF has re-aligned its Chemicals segment reporting to follow important value chains, so petrochemicals includes propylene oxide and all important propylene derivatives alongside other steam cracker derivatives. Monomers includes most of the former Inorganics division products along with high volume monomers and basic polymers from the former Plastics segment, such as MDI and TDI (toluene diisocyanate). The Intermediates division is concentrated on the methane, or C1, value chain.

BASF’s Petrochemicals division sales were down 6% in 2013 due to lower volumes, lower prices and a 2% negative currency effect. The company’s large cracker in Antwerp, Belgium, was shut for maintenance during the year and this contributed to lower volumes and sales in Europe.

Petrochemicals division sales in the US in 2013 were lower in euro terms but stable in Asia, despite what the company called “a difficult market environment” with pressure on margins in the acrylates and solvents markets as new production volumes became available. Margins on steam cracker products in North America were “significantly improved”, it said.

Monomers’ sales were also down 6% in 2013 with prices under pressure and volumes slightly higher. BASF said that the sales decline in the second half of 2013 in this division in Europe and Asia “was especially considerable”. Margins were weak for caprolactam and polyamide.

Intermediates sales in 2013 were down 1% although volumes were up 5% driven largely by butanediol and its derivatives.

Between 2014-2020, BASF is planning €20.2bn in capital expenditures (CAPX), of which $4bn will be in the oil and gas segment. Geographically, the CAPX allocation will be 49% for Europe; 25% for North America; 18% for Asia Pacific; 4% for South America, Africa, Middle East; and 4% for sites currently being evaluated. For 2014, total CAPX will be around $4.0bn.

BASF runs such a diverse and integrated portfolio of businesses that it can balance drops in demand and prices in parts of its chemicals and other operations with rises elsewhere. And reading between the lines, the company is more upbeat than it has been for some time.

Overall, it expects to “perform well in a market environment that remains challenging in 2014”.

Additional reporting by Joseph Chang

By Nigel Davis