BASF slashes investment budget on lower demand

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BASF is slashing its five-year investment budget by €4bn, as the world’s largest chemical company struggles with slowing demand and lower prices for its products.

The German group on Tuesday said “stress” in the chemical industry — driven by lower manufacturing output and slower consumer spending — prompted the hefty cut to investments in new and existing plants. It will now invest up to €24.8bn over the five years to 2027, down from €28.8bn.

“We have more projects than money,” chief executive Martin Brudermüller said in a call with reporters, adding that this was sparking “in-house competition”.

Brudermüller, who is set to leave BASF next spring after five years at the helm, said “growth areas” such as China were not likely to see cuts in investment. But in Europe, where demand had been lower, “you can imagine that you need new capabilities at a later point in time — maybe you don’t need them at all”.

BASF has been criticised for investing €10bn into a state of the art petrochemicals plant in China, at a time when Berlin has been calling for industries such as chemicals to reduce their reliance on the global manufacturing hub.

The company has at the same time announced significant and “permanent” cuts to its headquarters in Ludwigshafen, which it said on Tuesday would bring about annual savings of €1.1bn by the end of 2026.

The continued slow demand and low prices for BASF’s chemicals, coupled with a hit from the lossmaking oil and gas subsidiary Wintershall Dea, prompted the company to declare that full-year revenues and profits would reach the bottom of its target range.

It now expects full-year sales to reach the lower end of the previously guided range of €73bn to €76bn, while earnings before interest and taxes are expected to be at the low end of €4bn to €4.4bn.

Third-quarter sales slumped €6.2bn to €15.7bn compared with last year, and BASF said chemical production was down globally, with the notable exception of China. Brudermüller said that although prices were still low in China, there had in “recent weeks” been a “considerable recovery” in demand for chemical products.

This contrasted with figures released in China on Tuesday, which showed that manufacturing activity in the country had unexpectedly contracted in October, dampening hopes of a post-pandemic recovery in the world’s second-largest economy.

“I can only tell you about our own experience,” said Brudermüller, who added that he was in China last week, where colleagues had told him of stronger sales volumes throughout “most business areas” with demand from the Chinese automotive industry particularly strong.

BASF’s plants in China had been increasing production in recent weeks and “we expect that it will continue”, Brudermüller said.

The company’s share price, which has dropped nearly 10 per cent since the start of the year, rose more than 4 per cent on Tuesday morning, as investors reacted positively to additional cost cuts. “The vigorous actions are certainly positive news,” said analysts at Stifel.