In the middle of a banner financial year, plastics and chemicals maker BASF Corp. plans to cut costs by $150 million by mid-2007, closing three plants and eliminating 400 jobs.
The firm plans to close less-efficient plastics and polymer-related sites in Enka, N.C.; Aberdeen, Miss.; and Portsmouth, Va.; and consolidate some of that production into Freeport, Texas. The moves will eliminate about 400 jobs. Savings opportunities and economies of scale will help reach the additional $150 million in savings, officials said.
Florham Park, N.J.-based BASF - the North American arm of BASF AG of Ludwigshafen, Germany - racked up pretax profit of $800 million in the first half of 2005, a far cry from the $500 million loss it showed in 2001. In early 2003, overcapacity and inefficient operations led the firm to start a restructuring. That plan led to plant closings at 23 North American sites and the loss of more than 5,000 jobs. It also has saved BASF $250 million to date.
In the midst of those closings, BASF also opened seven larger, more efficient plants, including a major styrenic polymers plant in Altam¡ra, Mexico.
At an Oct. 25 news conference in New York, BASF officials detailed their plans for the region in the short term and moving ahead into the next decade.
``The North American chemical market is growing at about 2 percent a year, and it will remain the largest single chemical market in the world well into the next decade,'' Chairman and Chief Executive Officer Klaus Peter Loebbe said. ``BASF intends to be one of the players in the consolidation of the chemical industry in North America in the years ahead.''
The firm currently has 10,000 employees at more than 40 sites in North America, producing nylon, styrenics, polyurethane and other specialty plastics, as well as a host of chemical products. In the first half of 2005, BASF had sales of about $5.9 billion in North America - 16 percent more than the year-ago period - representing about 23 percent of total sales for BASF AG.
In global plastics, BASF AG's first-half sales were about $6.9 billion, with about $2.7 billion of that amount coming from styrenics. The plastics sales total was up 19 percent vs. the first half of 2004, with plastics making up about 28 percent of BASF AG's first-half sales. First-half plastics profit jumped almost 40 percent to more than $940 million in the year-ago comparison.
Other recent moves at BASF include the sale of its U.S. PS business and plant in Joliet, Ill., to Ineos Group and swapping its nylon fibers unit for the nylon resin business of Honeywell International.
Like many plastics and chemicals firms, BASF remains concerned about the cost of natural gas and other raw materials used to make its products. Loebbe said BASF will continue to look at energy conservation and possible new energy sources, since increases of U.S. natural gas costs to $14 per unit have made the region uncompetitive with the rest of the world. To put the impact of the natural gas price in perspective, Loebbe said it would be similar to a consumer paying $7 for a gallon of gasoline.
``The U.S. has gone from being a paradise in terms of feedstock and energy costs to one having the highest price for natural gas in the industrialized world,'' said Loebbe.
BASF also is similar to its peers in recovering from the impact of Hurricanes Katrina and Rita. Officials said that although no BASF plants in the Gulf Coast region suffered serious damage, many customers still are on allocation for products purchased, and those conditions could remain through the end of the year.
``Before the hurricanes, we were headed toward balance and markets were moving to stability in pricing,'' said Joseph Breunig, a 17-year BASF veteran who was named president of its North American chemicals, plastics and performance products units earlier this year.
``Now, it will probably take us three or four months to get back to that position, but demand has been good.''
Breunig added that the firm continues to experience ``supply-chain bubbles'' in some areas because of difficulty in obtaining trucks to deliver its products, as well as raw materials to run its plants.
``Dealing with the human needs is our first priority,'' he said. ``Our capacity is OK, but things are taking longer than expected in some cases.''
BASF also will focus on new products via a ``demonstration home'' that the firm is building in Paterson, N.J., using its insulation and coatings. Officials said the home will require 80 percent less energy to heat and cool than a conventional home. It's expected to open in early 2006.
Loebbe, who's been with the firm since 1966, also said the company has received some interest in the massive Mount Olive, N.J., complex it vacated last year, but hasn't found a buyer yet. The site ``is a million square feet, so you're not just going to use it for a coffeehouse,'' he said.
