Chemical prices to remain strong into the second quarter – BASF’s CFO

BASF’s steam cracker II at Ludwigshafen. Source: BASF

LUDWIGSHAFEN, Germany (ICIS)–BASF expects chemical prices to remain at their significantly higher level, compared with last year, through the 2017 first quarter and into Q2, CFO Hans-Ulrich Engel said on Friday.

Chemical prices gathered considerable pace in the fourth quarter of 2016 following the oil price pushing naphtha up from $240-250/tonne to closer to $500/tonne. That has helped lift chemical prices, up now by 40% compared with Q1 last year. “Our view is that we will probably see this price level going in Q1 and then into Q2, Engel said.

BASF expects group sales to increase “considerably” in 2017, or by more than 5%, CEO Kurt Bock said.

The company is basing its forecast on global economic growth of 2.3% (the same as last year) and growth in global chemical production, excluding pharmaceuticals of 3.4% (again the same as in 2016). Its working assumption currently is for an average Brent oil price of $55/bbl (compared with $44/bbl in 2016).

BASF’s sales growth will be supported by slightly higher sales in its Performance Products segment and considerable increases in the remaining segments as well as the company’s ‘Other’ designation which was hit last year by lower prices and volumes in raw materials trading.

It is the increase in the price of the company’s primary raw material, naphtha, however, that is driving sales growth currently.

In general terms, Bock pointed to a good January and February in Asia even despite the Lunar New year holiday period. He expects BASF’s growth to be “at the market level in Asia,” this year.

BASF’s sales were down 18% last year at €57.6bn but that comparison included the loss of €10.1bn of prior year sales from the gas trading and storage business to Gazprom at the end of September 2015.

“In total, portfolio effects lowered sales by 15%,” Bock said. Lower raw material prices led to a 4% fall in sales. Volumes were up 2% (4% in chemicals) and there was a negative 1% currency effect.