Ludwigshafen, Germany - BASF Group has launched a major cost-cutting programme in Europe, particularly in Germany and, separately, is to shut a number of production facilities at its flagship site in Ludwigshafen.
The stringent measures are in response to a significant business decline (*see below) at BASF, amid a challenging trading environment, linked to the war in Ukraine and in particular increased raw material and energy prices.
“Europe’s competitiveness is increasingly suffering from overregulation, slow and bureaucratic permitting processes, and in particular, high costs for most production input factors,” said chairman Dr. Martin Brudermüller:
“All this has already hampered market growth in Europe in comparison with other regions. High energy prices are now putting an additional burden on profitability and competitiveness in Europe,” BASF’s leader further explained.
Among the challenges, the group’s operational earnings were hit by additional energy costs of €3.2 billion globally, with Europe accounting for around 84% of this increase, BASF reported 24 Feb.
The German group’s site in Ludwigshafen was hardest hit by this development, within which higher natural gas costs accounted for 69% of the overall increase in energy costs globally.
Annual costs savings of over €500 million are now to be achieved by the end of 2024, mainly by “rightsizing” non-production - service, operating, R&D and ‘corporate centre’ - operations.
About half of the cost savings are to be realised at the Ludwigshafen site, said BASF, noting that globally, the measures are expected to have a net effect on around 2,600 positions.
Adaptations to the integrated ‘verbund’ structures in Ludwigshafen are expected to lower fixed costs by over €200 million annually by the end of 2026, the group stated.
BASF is to also close a number of production facilities in Ludwigshafen, including its toluene diisocyanate (TDI) plant and two other plants, producing DNT and TDA feedstock for the polyurethane monomer.
Ludwigshafen will also see the shutdown of its caprolactam plant, one of the two ammonia plants and an associated fertiliser unit.
Furthermore, BASF is reducing adipic acid production capacity and closing plants for precursors cyclohexanol and cyclohexanone as well as soda ash at the German site.
With regard to TDI complex in Ludwigshafen, BASF said the unit had “been underutilised and not met expectations in terms of economic performance. This situation has further worsened with sharply increased energy and utility costs.”
BASF said its European customers will continue to be supplied with TDI from its global production network with plants in Geismar, Louisiana; Yeosu, South Korea; and Shanghai, China.
In total, the group said 10% of the ‘asset replacement value’ at the Ludwigshafen site will be affected by the closures, with the likely loss of around 700 production jobs.
The measures will be implemented stepwise by the end of 2026 and are expected to reduce fixed costs by more than €200 million per year.
“We are doing this because we believe in the future of the Ludwigshafen site, said Brudermüller. “We believe in the people who work here, and we believe in the region Europe.”
*For 2022, BASF posted an 11.5% year-on-year dip in group earnings (EBIT before special items) to €6.9 billion, on 11.1% higher sales of €87.3 billion.
In the fourth quarter, sales fell 2.3% year-on-year to €19.3 billion, mainly on lower volumes, while EBIT before special items dropped 69.6% to €373 million.
Despite “significantly” lower volumes, sales grew mainly on higher prices - particularly at BASF’s Materials and Chemicals segments - linked to increases in raw materials and energy prices.
The earnings dip was linked to a strong decline in earnings contributions from the Chemicals and Materials segments, which both posted lower margins and volumes as well as higher fixed costs.
Looking ahead, BASF pegged expected sales for 2023 at between €84 billion and €87 billion and expected EBIT before special items at between €4.8 billion and €5.4 billion.
Uncertainties linked to “the war in Ukraine, high raw materials and energy costs in Europe, rising prices and interest rates, inflation and the development of the coronavirus pandemic will continue in 2023,” said BASF.
BASF, therefore, expects only moderate growth of 1.6% for the global economy in 2023, down from 3.0% last year. For global chemical production, it forecast 2.0% growth, similar to the 2022 level.
The company added that it foresees “a weak first half of 2023 followed by an improved earnings environment in the second half of the year due to recovery effects, especially in China.”