Business

BASF extends cost cuts by €1bn as demand for chemicals falls

Chemicals maker intensifies downsizing at home site as it battles high energy prices and sinking demand

The BASF chemical plant in Ludwigshafen, Germany. The company has announced an additional €1 billion of cost-cutting at its home site in Ludwigshafen, intensifying a planned downsizing in Germany amid sinking demand and higher energy prices. Photograph: Alex Kraus/Bloomberg

Patricia Nilsson
Fri Feb 23 2024 - 11:22

BASF has announced an additional €1bn of cost-cutting at its home site in Ludwigshafen, intensifying a planned downsizing in Germany amid sinking demand and higher energy prices.

The world’s biggest chemicals maker said the fresh €1 billion in annual cuts would target both production and non-production areas, taking total targeted annual savings to €2.1 billion by 2026, including reductions announced after Russia’s full-scale invasion of Ukraine sent gas prices soaring.

BASF employs approximately 60 people at is facility in Cork.

Chief executive Martin Brudermüller said on Friday that earnings at BASF’s Ludwigshafen site had continued to weaken last year, revealing the “urgent need for further decisive actions here”.

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He added: “Our teams delivered a positive earnings contribution in all significant countries — with the exception of Germany.”

Germany last year became the world’s worst-performing major economy, as its large industrial base suffered not only from high interest rates and inflation but also elevated energy prices.

The chemicals industry, which sits at the start of a vast number of companies’ supply chains, is seen as a bellwether for industrial production, adding to concern among German politicians and executives of creeping deindustrialisation.

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BASF outlined the new cost cuts in annual results, which confirmed a decline in sales and profits set out in preliminary earnings. The group reported a 21 per cent drop in sales to €68.9 billion and a 29 per cent fall in earnings before taxes, interest, depreciation and amortisation and special items, to €7.7 billion.

But BASF said a recovery in industrial activity in China should lift earnings in its current financial year, to as much as €8.6bn. Shares were broadly flat in morning trading on Friday.

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BASF has deflected calls from calls from politicians — many of whom are worried about German industry’s reliance on China — to “de-risk” by investing less in the country.

While cutting costs at home, the company is building a €10 billion petrochemical site in Guangdong, its biggest-ever foreign investment. BASF said it would spend €6.5bn in property and plant-related expenses next year, with the majority going to its new Chinese site.

The company announced this month that it would sell its two joint ventures in Xinjiang, a region where Beijing has been accused of severe human rights violations, after media reports detailed how employees at the company’s Chinese joint venture partner had participated in state-sanctioned surveillance of the local population.

The incident highlighted the increasing difficulty faced by multinational companies aiming to straddle the diverging world views of Beijing and Washington, which has already introduced stringent import restrictions targeting Xinjiang supply chains.

Mr Brudermüller, who is set to be replaced by Markus Kamieth in the coming months, said BASF wanted to develop its Ludwigshafen site to a “leading low-CO₂-emission chemical production site with high profitability”, necessitating the cost cuts.

He added: “At the same time, we are systematically driving forward our business in those regions of the world that are growing more dynamically and offer attractive conditions for investments.” - Copyright The Financial Times Limited 2024

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