German chemical giant BASF CEO said on October 24 that the slowdown in global economic growth will continue to affect chemicals in the coming months, as there were no stimulus factors to promote improvement in the third quarter, while the Sino-US trade war and Brexit Has been weakening confidence.
BASF is the European leader in chemicals and the company released its third quarter financial results earlier Thursday. As expected by chemical stock analysts, earnings in the third quarter fell sharply.
However, as of 12:00 London time, BASF's stock price has risen by almost 2%. As the company lowered its guidance price in July and signaled that "the future will be more painful," the stock price immediately adjusted.
The company's CEO, Martin Brudermuller, also said that so far the US economy has been developing quite well, but it is also entering a period of industrial downturn, which will only exacerbate the dilemma.
"Political conditions will remain difficult … Trade conflicts are suppressing our business and, along with Brexit, are weighing on the economy. The US is also experiencing a slowdown." He said.
"Current [2020] forecasts will be very difficult. In the third quarter, we did not see any signs of improvement."
In the July-September quarter, demand in major end markets such as automobiles remained weak, affecting the company's chemical sales prices, which fell 4%.
Hans-Ulrich Engel, the company's chief financial officer, said: "Capacity utilization has dropped significantly below 80%, (this has also been reflected in our portfolio … in short, demand is weak, so we must operate this in accordance with the current situation A huge company. "
Isocyanate: stable but very low price
Brudermuller told reporters at a press conference in Ludwigshafen that isocyanate prices "have fallen sharply."
BASF's CFO continues to say that the sharp drop in isocyanate prices over the past two years shows signs of stabilization, but warned that the company's upcoming toluene diisocyanate (TDI) plant in China could increase global supply and keep prices low .
TDI is a good indicator of economic activity-isocyanates enter the end market and produce polyurethane (PU) flexible foams for furniture, mattresses and car seats.
"At the moment, TDI prices are stabilizing, but we must keep in mind that we are expanding production at our world-class factories in China, which could put pressure on margins and prices," said the CFO.
He added: "Prices are stable at very low levels."
The company opened another TDI plant in 2018 at its German flagship Ludwigshafen with a capacity of 300,000 tons per year.
The CFO said the plant currently under maintenance may take several quarters to increase capacity utilization.
Engel said, "TDI's plant operating rate clearly reflects the development of the industry."
BASF said on Thursday that it still plans to negotiate with "a small number of bidders" on the sale of its construction chemicals business, and that the transaction is scheduled to begin this quarter.
Cost reduction plan
The company announced in June that it would lay off 6,000 people worldwide. Earlier this week, the company also announced that it had reduced the size of its board of directors from seven to six as part of its cost-cutting plan.
Executives said that by the end of 2019, 1,800 people will be laid off, of which about 1,100 will be in Ludwigshafen.
BASF said its project to build a Verbund plant in Guangdong, China is still ongoing. The company announced the $ 10 billion project in 2018.
In addition, the CEO stated that the construction and operation of the plant are not forecasted to be affected by the US-China trade war, as the project is a project that "will grow in decades." He added that the project was a "top priority" for the Chinese and German governments.
"We are in discussions with various companies, we need investment, we need the support of Chinese and German companies. Fortunately, this project is not affected by the current state of affairs in [Trade War]," said Chief Financial Officer Engel.
The CEO said that to date, BASF ’s business in the United States has been “very stable,” but in the medium and long term, the trade war will also hit the US economy hard.
"In the short term, the Chinese economy will be more affected, but longer forecasts (indicating) will have a more severe impact on the United States. The PMI manufacturing index was sluggish in the fourth quarter," Brudermuller said.
BASF: Against Plastic
Engel highlighted how more than 20 years ago BASF divested its plastic packaging businesses, which were mainly made of polyethylene (PE) and polypropylene (PP), and claimed that the company could shake off strong social opposition to plastic.
"The plastics dispute is global and very exciting, which is why we formed the End of Plastic Waste Coalition [AEPW]. We are also actively involved, and together with other companies, we can better solve many problems "" The point is not just about the raw materials for [production of plastics]: The current problem has little to do with [BASF's end market] consumer products. On the other hand, this may be an opportunity. "
Carbon dioxide prices: "fierce" dialogue with politicians
Germany has approved carbon dioxide (CO2) prices, which will take effect from 2021, although BASF's chief executive said that the German company intends to have "fierce discussions with politicians" to fine-tune environmental protection options.
"Chemicals need to be converted from fossil fuels to electricity to reduce energy consumption. If this plan is to succeed, our regulatory environment must make it affordable for people. Otherwise, [green policy] will not succeed in terms of cost. "
"We will have heated discussions with all parties. The chemical industry will contribute, but we need the German government and the European Commission (EU executive body) to understand that we need to have a level playing field."