Due to the triple burden of slow development, high energy costs, and excessive regulation, BASF (BASFn.DE) stated costs at its European locations must be reduced to a “permanently” smaller size. However, the head of the German industrial giant threw his support behind a proposed expansion in China.
Due to the triple burden of slow development, high energy costs, and excessive regulation, BASF (BASFn.DE) stated costs at its European locations must be reduced to a “permanently” smaller size. However, the head of the German industrial giant threw his support behind a proposed expansion in China.
The CEO of the chemical manufacturer, Martin Brudermueller, said in a statement on Wednesday that “these difficult framework conditions in Europe imperil the international competitiveness of European producers and oblige us to modify our cost structures as quickly as feasible and also permanently.”
The cost of natural gas increased by nearly 2.2 billion euros ($2.2 billion) in the first nine months of 2022 at BASF’s European facilities, including its largest facility in Ludwigshafen, southwest Germany, where it manufactures everything from vitamins to insecticides.
The company also stated that spot gas prices were five to six times higher than in the US.
As a result, it is modifying production methods, raising prices, and reducing production of goods that do not sell for higher prices. However, longer-term cost reductions are unavoidable.
Corporate Europe has adopted efficiency efforts as the norm as the Ukraine crisis raises energy prices and results in the highest inflation, in decades.
BASF announced it would cut annual costs by 500 million euros in Europe up to 2024, or about 10%, as part of an unscheduled release of preliminary third-quarter results, two weeks ago.
This cost reduction will include job cuts. Additionally, it hinted at further structural reductions in the area, which would be announced early the next year.
Noting a worse economy, BASF stated on Wednesday that it has become more difficult to meet its target of approximately 7.2 billion euros ($7.2 billion) in full-year adjusted operating income internationally, down from 7.8 billion last year.
Competitor Covestro (1COV.DE), a producer of chemicals for upholstery foams and insulation slabs, lowered its earnings forecast on Tuesday, as high gas and raw material prices put heavy industry companies across Europe, under pressure.
OPERATING LOSS
The operating loss in the country was 130 million euros, according to information provided by BASF, on Wednesday.
This compares to a profit of more than 100 million euros in the second quarter. BASF had previously warned that its domestic business in Germany was losing money in the July to September quarter.
The German government is preparing a mechanism to limit gas prices for homes and small and medium-sized enterprises starting in March, while rates for huge industrial firms that consume 70% of the nation’s gas supply annually would be capped starting in January.
However, BASF claimed that these would only be band-aid solutions and that it was uncertain whether the corporation would even use the assistance.”The state can’t make up for the deficits over years to come,” said Brudermueller, adding that companies need to remain flexible and adjustible to new realities.
The cutbacks at home contrast with a 10 billion euro chemical complex that BASF plans to build in Zhanjiang, southern China, to run entirely on renewable energy, as it banks on booming Asian markets and looks to reduce reliance on Europe.
The decision defies the German government’s growing worries about its country’s economic dependence on a Chinese trading partner it perceives as being governed by an increasingly authoritarian regime. Next week, the German Chancellor Olaf Scholz will travel to China with the CEO of BASF.
“We have a very successful business in China. There is access to half of the global market “, on a media call, Brudermueller noted.
In an effort to ease worries about impending layoffs at home, he claimed that a wave of retirements and new internal employment for those who were in danger of losing their jobs would soften the blow
.So, he added, “I would think that the majority of (job losses) will be handled that way.” As conversations with shop stewards are still ongoing, he withheld further information.
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