BASF turns corner but fine chemicals still under pressure

Related tags Raw materials Nutrition Material Basf

The German chemicals giant BASF has announced a successful second
quarter, though the company's nutrition and agricultural products
division turned in a poor performance with minimal sales growth and
reduced earnings from the fine chemicals sector.

The company's​ sales overall increased by almost 13 per cent to €9.3 billion compared to the same quarter in 2003 and income from operations (EBIT) before special items climbed 44 percent to €1.2 billion.

However, sales in the nutrition and agricultural products sector increased by a mere 1.5 per cent, making it the division with the smallest growth. BASF blamed this situation on the rising costs of raw materials and unsatisfactory vitamin prices - though sales in the area of human nutrition increased.

Pharmaceutical active ingredients continued to develop positively, according to BASF, but the startup of a new citral plant, the scheduled shutdown of lysine production, and negative currency effects reduced earnings.

The division's earnings were also reduced by costs for the company's new plant in Ludwigshafen, which will enable it to expand its vitamin production. The new 40,000 metric ton plant for citral is expected to make the aroma chemical, the key component in vitamin A and E production, as well as carotenoids.

"These results give us reason to be optimistic, but without becoming euphoric,"​ Dr Juergen Hambrecht, chairman of the board of executive directors of BASF. "We expect the high demand for our products to continue, but it will be a more moderate rate of increase compared to the first half, and uncertainties remain, in particular, the high energy and raw materials prices around the world.

Sales and earnings increased in all regions in the second quarter, but Asia and North America were the major growth drivers, with Europe lagging slightly behind in third place. In Europe, second-quarter sales were €5.5 billion, an increase of almost 12 per cent, with EBIT before special items up 26 percent. Sales in Germany also rose again for the first time.

For the rest of 2004, BASF plans to continue its strategy of restructuring and cost-cutting, though anticipates that pressure will continue to be exerted by the high cost of raw materials. The company also believes that Asia and North America will remain the strongest growth drivers.

"The programs that are currently being implemented will achieve cost savings of more than €700 million by the end of 2006,"​ said Dr Hambrecht.

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