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Released November 07, 2022 | GALWAY, IRELAND
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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--The European chemical market is at breaking point, and German-based chemical major BASF SE (Ludwigshafen, Germany) has confirmed that it will "permanently" cut costs at its European sites to protect the company.
"First, the European chemical market has been growing only weakly for about a decade," said BASF chief executive officer Martin Brudermüller at the release of the company's Q3 financials. "Second, the significant increase in natural gas and power prices over the course of this year is putting pressure on chemical value chains. In the first nine months of 2022, the additional costs for natural gas at BASF's European sites amounted to around 2.2 billion euro (US$2.18 billion) compared with the same period in 2021. Moreover, uncertainties due to the enormous number of regulations planned by the E.U. are weighing on the chemical industry."
He added: "I want to stress: We cannot stick our heads in the sand and hope that this difficult situation will resolve itself on its own. We, as a company, must act now. Our cost savings program aims to secure our medium and long-term competitiveness in Germany and Europe. The challenging framework conditions in Europe endanger the international competitiveness of European producers and force us to adapt our cost structures as quickly as possible and also permanently. This is why we initiated a cost savings program focusing on Europe and on Germany in particular."
The company aims to streamline non-production units in operating, service and research and development (R&D) divisions as well as in the corporate center. Cost-reduction measures will be fully implemented until the end of 2024 while short-term cost savings will be "implemented immediately." When completed, BASF believes the measures will generate annual cost savings of 500 million euro (US$497 million)--around 10% of its European costs in those business areas. More than half of the cost savings are to be realized at the Ludwigshafen site in Germany. It is also currently developing further "structural measures" to adjust BASF's production across Europe in the medium and long term. Among the changes envisaged is a dramatic reduction in its use of gas at chemical sites with more details on proposed hydrogen projects expected in early 2023.
The news comes hot on the heels of the company's decision to build a new world-scale neopentyl glycol (NPG) plant, with an annual production capacity of 80,000 metric tons per year, at its Zhanjiang Verbund site in China. The Verbund site in Zhanjiang is a major undertaking that has been under construction since 2019. BASF expects to invest up to 10 billion euro (US$10.1 billion) there, which will make it the company's third largest after Ludwigshafen in Germany and Antwerp in Belgium. For additional information, see October 28, 2022, article-BASF Taps China for New Chemical Plant.
BASF's European downsizing plans come at a difficult time for the European chemical sector, which recently warned that it has reached "breaking point." Industry body CEFIC said that the current energy crisis has reached an "unsustainable level" for the European chemical industry. For the first time ever, the European Union (EU) has imported more chemicals than it exports, both in volume and value, resulting in a trade deficit of 5.6 billion euro (US$5.56 billion) for the first half of 2022. It stated: "This same energy crisis is making a dent in the competitiveness of the chemical industry, which is one of the most energy intensive in Europe, having to compete on the global market with players from regions with more favorable energy prices. The EU chemical sector supplies virtually all other value chains, including food, healthcare, construction and transport, and any disruptions it undergoes endanger the EU's aim to be strategically autonomous."
Marco Mensink, CEFIC's director general, said: "We are approaching the point of no-return: if no emergency solution to the energy prices is provided to our sector, we are not far off the breaking point. Hundreds of businesses in the chemical sector are already in survival mode and we have started seeing the first closures. We need action now."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
"First, the European chemical market has been growing only weakly for about a decade," said BASF chief executive officer Martin Brudermüller at the release of the company's Q3 financials. "Second, the significant increase in natural gas and power prices over the course of this year is putting pressure on chemical value chains. In the first nine months of 2022, the additional costs for natural gas at BASF's European sites amounted to around 2.2 billion euro (US$2.18 billion) compared with the same period in 2021. Moreover, uncertainties due to the enormous number of regulations planned by the E.U. are weighing on the chemical industry."
He added: "I want to stress: We cannot stick our heads in the sand and hope that this difficult situation will resolve itself on its own. We, as a company, must act now. Our cost savings program aims to secure our medium and long-term competitiveness in Germany and Europe. The challenging framework conditions in Europe endanger the international competitiveness of European producers and force us to adapt our cost structures as quickly as possible and also permanently. This is why we initiated a cost savings program focusing on Europe and on Germany in particular."
The company aims to streamline non-production units in operating, service and research and development (R&D) divisions as well as in the corporate center. Cost-reduction measures will be fully implemented until the end of 2024 while short-term cost savings will be "implemented immediately." When completed, BASF believes the measures will generate annual cost savings of 500 million euro (US$497 million)--around 10% of its European costs in those business areas. More than half of the cost savings are to be realized at the Ludwigshafen site in Germany. It is also currently developing further "structural measures" to adjust BASF's production across Europe in the medium and long term. Among the changes envisaged is a dramatic reduction in its use of gas at chemical sites with more details on proposed hydrogen projects expected in early 2023.
The news comes hot on the heels of the company's decision to build a new world-scale neopentyl glycol (NPG) plant, with an annual production capacity of 80,000 metric tons per year, at its Zhanjiang Verbund site in China. The Verbund site in Zhanjiang is a major undertaking that has been under construction since 2019. BASF expects to invest up to 10 billion euro (US$10.1 billion) there, which will make it the company's third largest after Ludwigshafen in Germany and Antwerp in Belgium. For additional information, see October 28, 2022, article-BASF Taps China for New Chemical Plant.
BASF's European downsizing plans come at a difficult time for the European chemical sector, which recently warned that it has reached "breaking point." Industry body CEFIC said that the current energy crisis has reached an "unsustainable level" for the European chemical industry. For the first time ever, the European Union (EU) has imported more chemicals than it exports, both in volume and value, resulting in a trade deficit of 5.6 billion euro (US$5.56 billion) for the first half of 2022. It stated: "This same energy crisis is making a dent in the competitiveness of the chemical industry, which is one of the most energy intensive in Europe, having to compete on the global market with players from regions with more favorable energy prices. The EU chemical sector supplies virtually all other value chains, including food, healthcare, construction and transport, and any disruptions it undergoes endanger the EU's aim to be strategically autonomous."
Marco Mensink, CEFIC's director general, said: "We are approaching the point of no-return: if no emergency solution to the energy prices is provided to our sector, we are not far off the breaking point. Hundreds of businesses in the chemical sector are already in survival mode and we have started seeing the first closures. We need action now."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
