BASF AG plans to close at least 24 plants worldwide and is cutting its capital spending by 20 percent because of weakening economic conditions.
But the chemical giant in Ludwigshafen, Germany, is offering no details of which plants will close or which segments of its broad product mix will be affected.
In a June 21 news release, BASF Chairman Jurgen Strube cited a number of reasons for what he described as the ``extraordinary efforts'' BASF must take to meet its stated goal of increasing profit by 10 percent between 2000 and 2002. Reasons for the cuts include:
Increased second-quarter weakness in the European economy as well as no indications of an economic upturn in the United States.
Delays in opening new plants in Asia and Germany, preventing those ventures from contributing to earnings.
Reduced purchases as customers anticipate a drop in the price of oil and its related feedstocks.
Burden placed on earnings by BASF's capital expenditure program in the United States.
The release only states that 10 manufacturing sites, plus an additional 14 plants, will be closed. It is unknown how many plants are included in those 10 sites, so the final number of plant closings could be much greater than 24. Globally, BASF operates plants at more than 100 sites. BASF spokeswoman Jennifer Moore-Braun declined to give a timetable for the closings.
First quarter sales at BASF were up almost 10 percent, but operating income was down more than 18 percent. BASF's plastics and fibers segment - which includes polystyrene, expandable PS, styrenic copolymers, nylon, ABS, polyurethane and other specialty plastics - saw first quarter sales drop almost 22 percent, while operating income fell almost 59 percent.
Plastics and fibers is the largest of BASF's five operating segments, accounting for about 30 percent of the firm's $33.1 billion sales total last year. In 2000, the plastics and fibers unit's sales were up almost 28 percent, while profit climbed almost 23 percent.
North America accounts for about 25 percent of BASF's total business. Plastics and fibers generate about 40 percent of the firm's North American sales.
The cutback announcement comes three months after BASF said it would spend $2.3 billion to expand its plastic businesses in the next five years. Based on Strube's statement, that amount could be reduced to about $1.8 billion.
Recently, BASF launched construction on a 100 million-pound-capacity styrenic block copolymer plant set to open in Altamira, Mexico, in 2003. The firm also has targeted major expansions in a Russian PS/EPS joint venture, a Chinese ethylene/polyethylene venture and PU feedstock projects in China and South Korea for completion between 2003 and 2005.
The firm also spun off its North American polyolefins holdings into Basell NV, a joint venture with Royal Dutch/Shell Group. Basell, the world's largest polypropylene maker, recently completed a selloff of more than 1 billion pounds of PP capacity, as required by European regulators.