Market and product

BASF has downgraded its forecasts for chemical and industrial production, as well as for global GDP growth for the 2015-2020 period on the back of lower crude oil prices and economic volatility, the German chemical major said on Monday.

Chemical production growth, however, is still expected to outpace that of GDP and industrial production, said BASF.

The company expects chemical production to grow at an annual compound rate of 3.9% during 2015-2020, down from a previous forecast in 2011 of 4%, while global GDP is forecast to rise by 3%, compared to a previous estimate of 3.2%.

Industrial production will post growth of 3.5% during the same period, compared to a previously expected increase of 3.7%, added BASF.

The company said in 2011 it had failed to identify “game changers” including the shale gas boom in the US, which at the time it saw just as an “opportunity”, while it also failed to predict the Chinese government’s move to incentivise coal against gas for its chemical production, said BASF.

Equally, the company said chemical market dynamics had changed since 2011 as a consequence of overcapacity in China, lower growth of the US, European and Japanese economies, as well as lower feedstock costs.

“Major markets did not grow as fast as anticipated. The oil price has been unpredictable and has decreased substantially. Geopolitics have contributed to higher volatility,” said Kurt Bock, BASF’s chairman.

As a consequence, the German chemical major said “capital discipline” will remain a key feature of its performance during coming years, and confirmed less capital expenditure for the period, although the company did not specify what the reduction would be.

“Following a number of years with large capital projects, BASF will bring down capital expenditures to levels slightly above depreciation in the coming years,” it said.

Economic growth will be uneven depending on region, with Asia-Pacific consolidating its largest chemical market position in coming years and Europe returning “on a low level” to growth, while North America’s chemical market will continue thriving on the back of competitive feedstock and an expanding economy.

During an Investor Day held at its Ludwigshafen headquarters, BASF said it will continue to look at the divestments of business units which “only provide a low strategic fit” and announced a new cost savings program, Drive Efficiency (DriveE), running during the 2016-2018 period targeting contribution to earnings of €1.0bn by the end of 2018.

“In the next years, BASF aims to grow sales slightly faster than global chemical production; the company wants to grow EBITDA [earnings before interest, taxes, depreciation and amortization] well above global chemical production,” it added.