BASF halts Ludwigshafen TDI production on Rhine woes

LONDON (ICIS)–BASF has halted production of toluene di-isocyanate (TDI) at its Ludwigshafen, Germany, verbund complex due difficulties transporting raw materials down the River Rhine, the company said on Monday.

Water levels on the Rhine have reached an “all-time low”, the company said, after months of transportation difficulties along the key chemicals logistics artery.

Despite the adoption of alternative transportation methods including pipeline, truck and rail freight, not all raw materials can be supplied to the complex at present, meaning that TDI production has been halted.

Restart of production is contingent on improvements in Rhine water levels, BASF added.

The company had already adjusted production levels at the flagship 300,000 tonne/year unit earlier this month.

“At the current water level, Ludwigshafen can only be reached by a few ships. Even after shifting quantities to alternative means of transport such as trucks and rail, the supply of some important raw materials will still be restricted,” a company spokesperson said at the time.

The company had attempted to surmount lower water levels by sending more boats carrying less product to and from Ludwigshafen along the Rhine.

A hot and dry summer, and low rainfall levels through the autumn, have made logistics difficult throughout northwestern Europe, swelling demand and inflating prices for shipping, rail and truck transportation.

Freight rates for time chartered 5,000-tonne barges in the area have risen to €12,000 in recent weeks, according to market sources.

As of 13:00 GMT, water levels at Kaub, a key gauging point on the River, stood at 30cm.

The production halt and ongoing logistics headaches are of sufficient magnitude that the impact could be felt in BASF’s financial results for the year, with potential for problems to drag on through early 2019, according to analysts at Germany’s investment bank Baader Bank.

“As BASF’s two Ludwigshafen crackers are running at 60% capacity utilisation, and are therefore by definition loss making, 13 production lines are halted and the logistic costs should have jumped in H218 [second half of 2018]. We expect that BASF might have to cut its FY [full year] 2018 guidance,” said Baader’s analyst Markus Mayer.

“In addition, we fear that if the water level remains at the current historic lows the Rhine might freeze in the winter for the first time, and consequently the low Rhine water level would also impact H119.”

The TDI market has reacted with apathy to the news of BASF’s halting TDI production at Ludwigshafen, as length and a drop in demand on a year-on-year basis led to tumbling contract prices in recent months.

Participants expect these conditions to stay into next month, especially as inventories are high and December itself is a period of seasonally quiet consumption.

It could also be argued that the restart of the Ludwigshafen plant in July tipped the market into structural oversupply, which would further explain the aforementioned muted responses to the latest news.

Sources in Asia have said Chinese seller Wanhua Chemical’s 300,000 tonne/year Yantai plant could start on-spec production this year, which would only add to this global overcapacity.

“[An effect] in December, I don’t think so. [It is a] Short month, with low demand. Warehouses at producers of TDI should be full,” said a European reseller.

However, German chemicals major Covestro has informed its customers by letter that the Rhine’s water levels could affect its polyurethane (PU) business

The company subsequently reduced operating rates, but did not disclose which facilities were affected.

As it is difficult to predict when the Rhine’s levels will rise, such difficulties could last for an indeterminate period.

Some participants consequently argued that more balance is possible in the TDI market, eventually.

This would particularly be the case if stock levels and imports were not as high or prevalent as expected.

However, any rebalancing of fundamentals is unlikely by year-end.

“Everything seems to be OK actually … Suppliers have been able to deliver until now,” said a buyer.

“But I’m very careful to look how deliveries are developing.”

Pictured: People walk over stones looking out of the River Rhine to the Maeuseturm (mice tower) of Bingen, Germany, which usually sits on an island. Archive image taken at the end of October.
Source: Michael Probst/AP/REX/Shutterstock

Additional reporting by  Pavle Popovic 

(Update, adds market reaction, background from paragraph 14)