MOSCOW (MRC) -- BASF will “energetically pursue” it’s USD10.0-billion (USD11.7 billion) petrochemical project at Zhanjiang, Guangdong Province, China, as well as its investments in the production of battery materials, despite taking a more cautious approach to capital expenditure (capex) as a result of the COVID-19 pandemic, reported Chemweek with reference to chairman Martin Brudermuller's statement.
Speaking Wednesday on a conference call with analysts following the release of BASF’s third-quarter results, Brudermuller said that the company had cut capex by EUR600 million in 2020 to EUR2.8 billion and that over the next five years it would “strictly review projects and focus our spending,” which would involve “some postponements” to capacity additions. However, the company is not slowing the China project - a phased investment due for completion in 2030 - or battery-material investments because of the bright outlook for the two strategies. “The pandemic does nothing to change these two large growth opportunities,” he said.
China is making a V-shape recovery from the crisis and BASF’s sales volumes in the country grew at double-digit rates in the third quarter, Brudermuller said. “Market expectations for growth in China are even better than before the pandemic,” he said. “This gives us confirmation that our long-term assumptions about China are right.”
Meanwhile, “extreme growth” is still expected for battery materials, even though it will be a little slower than previously expected over the next few years, Brudermuller said. “The volumes needed for all the (electric) cars to be produced is a positive for BASF,” he said. Electric vehicles have increased their share of the overall market even during the sharp decline in the automotive industry this year caused by the pandemic, he added. BASF expects an overall 20% decline in worldwide light vehicle production in 2020.
BASF CFO Hans-Ulrich Engel said during the call that completion of the previously announced €1.15-billion divestment of BASF’s pigments business to DIC Corp. (Tokyo, Japan) had been delayed from the fourth quarter of 2020 to the first quarter of 2021, because of impacts from COVID-19. Meanwhile, the planned initial public offering (IPO) of the Wintershall DEA upstream oil and gas joint venture, originally planned for the second half of 2020, will likely take place in 2021, “subject to market conditions,” Engel said.
Following the pigments and Wintershall DEA deals, there will be “no urgent need” for major portfolio adjustments at BASF over the next three years, Brudermuller said. “We will focus on organic growth. Don’t expect big portfolio measures although in the smaller part (of the portfolio), there is always work that has to go on,” he said.
BASF has also delayed, until 2021, 10% of the 6,000 job cuts it had announced by the end of 2020, “due to labor effects caused by the pandemic,” Engel said. The job cuts form part of BASF’s “excellence program” that is on course to deliver a positive EBITDA contribution of €2 billion by the end of 2021, he said. The program is expected to generate EUR1.4 billion of the contribution by the end of 2020 with associated costs this year of about EUR300 million. The 2,000 job cuts announced recently at BASF’s global business services unit are not included in the 6,000 in the excellence program.
BASF included EUR2.8 billion of impairments in its third-quarter accounts to reflect the impacts of COVID-19 as well as restructuring. About EUR1 billion were in BASF’s surface technologies business and a combined EUR1.3 billion were in the company’s chemicals and materials businesses, Engel said.
Brudermuller told analysts that average daily order entries registered by BASF are “slightly lower” in October year on year. “Customers remain very cautious and are ordering lower volumes more regularly,” he said. About 80% of all BASF’s orders on hand will be booked in the next two months, according to Brudermuller. “We continue to have no clear view beyond that,” he said.
As MRC informed before, in September 2020, BASF-YPC Co., Ltd. (BYC), a 50-50 joint venture between BASF and SINOPEC, expanded the production capacity of neopentylglycol (NPG) at the state-of-the-art Verbund site in Nanjing, China. The plant was established in 2015 with an annual capacity of 40,000 metric tons. With the completion of the expansion in August 2020, the annual capacity will reach 80,000 metric tons.
We remind that Russia's output of chemical products rose in September 2020 by 6.7% year on year. At the same time, production of basic chemicals increased by 6.1% year on year in the first nine months of 2020, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-September output. Last month's production of primary polymers decreased to 852,000 tonnes from 888,000 tonnes in August due to shutdowns in Tomsk, Ufa and Kazan. Overall output of polymers in primary form totalled 7,480,000 tonnes over the stated period, up by 16.4% year on year.
BASF-YPC Company Limited (BASF-YPC) is a 50-50 joint venture between BASF and Sinopec, founded in 2000, with a total investment of approximately USD5.5 billion. The integrated petrochemical site produces about three million tons of high-quality chemicals and polymers for the Chinese market annually. The products serve the rapid-growing demand in multiple industries, including agriculture, construction, electronics, pharmaceutical, hygiene, automotive and chemical manufacturing. All BASF-YPC plants are interconnected in order to use products, by-products and energy in the most efficient way, to save cost and to minimize the environmental impact. BASF-YPC posted sales of approximately CNY 19.6 billion in 2019 and employed 1,942 people as of the end of the year.