Global trade conflicts weigh down on BASF earnings

BASF SE has reported a fall in second quarter sales and earnings (EBITDA), due in part to global trade conflicts and a slowdown in industrial growth.

Group sales stood at 15.2 billion euros ($16.9 billion) during the three months to end of June, down 4 percent compared to the same period in 2018, the German chemicals giant announced July 25.

Earnings plunged 27 percent year-over-year to 2 billion euros ($2.23 billion), impacted by lower volumes and margins in the chemicals and materials segments.

“In total, the two segments accounted for 83 percent of the overall earnings decline in the second quarter of 2019,” said Dr. Hans-Ulrich Engel, chief financial officer of BASF SE.

Second quarter revenue for the materials segment fell 16 percent to 2.96 billion euros ($3.3 billion) during the period, while the chemicals unit registered a 22 percent drop in sales at 2.18 billion ($2.43 billion).

“There is currently high uncertainty, low visibility and poor predictability,” said Dr. Martin Brudermüller, chairman of the Board of executive directors of BASF SE, during a conference call. 

BASF cited global trade conflicts, particularly between the U.S. and China, as a serious concern for the company.

“We followed the general assessment that a solution would be found by the middle of the year. But now it seems the situation will not ease for some time,” said Brudermüller.

BASF revised down its 2019 outlook in an July 8 ad-hoc release citing a slowdown in industrial and chemical growth globally.

The Ludwigshafen-based company now anticipates a slight decline in revenue and a 30 percent fall in EBIT for the year.

“The automotive industry – an important customer industry for BASF – will not recover this year. We now expect a global decline of minus 4.5 percent over the full year,” said Brudermüller. 

According the BASF official, customers in all industries are currently “very cautious” with projections and ordering, therefore lowering visibility on demand development.

BASF announced plans to cut 6,000 jobs in early July, to save 300 million euros ($334 million) annually by 2021.  

According to Brudermüller at BASF in Ludwigshafen, more than 1,100 employees accepted an offer and signed termination agreements in the first half of the year.

As Europe braces for the hottest week of the year, German chemicals giant BASF is preparing for the possibility of extreme weather events occurring more frequently in the future.
 
In order to make the Ludwigshafen headquarters site more resistant to long-term low water events, BASF said it is working on a concept that will include various measures in two important areas of activity: the cooling water supply and logistics, BASF spokesman Florian Tholey told PNE in a written statement. 
 
The measures regarding the cooling water supply have already been implemented, with the recent installation of an additional so-called recooling plant, Tholey said, adding that another recooling plant is also under construction.
 
Recooling plants allow the reuse of water for cooling purposes several times before it is discharged back into the Rhine, making the company “more independent of the Rhine”.
 
In addition, BASF will use digitalization to control its cooling water flows more efficiently in the future.
 
BASF’s second field of action concerns transport and logistics via the Rhine.
 
To address the issue, the company has optimized its stock management through digitalization.
 
“Meshing data from various sources will enable us to make more precise long-term forecasts for weather, water levels, and supply chain,” Tholey explained.
 
In addition, the company has optimized several loading points during the past months in order to switch more flexibly between different modes of transport in the future.
 
While more loading points are to follow in the near future, BASF has also increased the proportion of ships suitable for low water, Tholey added.
 
Rhine water levels have dropped in the past few weeks, putting Europe’s most important river and transport artery at risk of shutdown.
 
BASF was severely hit by an “all-time” low in Rhine water levels last summer, which forced the supplier to halt toluene diisocyanate (TDI) production at its Ludwigshafen production facility.
 
This year, so far, BASF has not had any restrictions regarding logistics or cooling water supply as the water levels of Rhine have not been critical in recent months, Tholey told PNE.