Thursday, October 27, 2022

BASF seeks 'permanent' cost cuts at European operations

 

FRANKFURT, Oct 26 (Reuters) - BASF (BASFn.DE) said costs at its European sites must be cut to a "permanently" smaller size because of a triple burden of sluggish growth, high energy costs and over-regulation, with the German industrial giant's boss throwing his weight behind a planned expansion in China.

"These 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," the chemical maker's CEO Martin Brudermueller said in a statement on Wednesday.

In the first nine months of 2022, natural gas costs at BASF's European sites - which include its largest complex at Ludwigshafen in southwest Germany, where it makes everything from vitamins, foam chemicals and engineering plastics to pesticides - were about 2.2 billion euros ($2.2 billion) higher than a year earlier.   


Spot gas prices were five to six times higher than in the United States, the company added.

In response, it is adjusting production technology, marking up prices, and cutting output of products that do not sell at higher prices. But longer-term cost cuts are inevitable.  


Efficiency drives have become the order of the day across corporate Europe, as the Ukraine crisis drives up energy costs, causing decades-high inflation.

As part of an unscheduled release of preliminary third-quarter results two weeks ago, BASF said it would reduce annual costs by 500 million euros in Europe up to 2024, or about 10%, including job cuts. At the time, it also flagged more structural cutbacks in the region, to be announced early next year.

BASF said on Wednesday its goal to reach close to 7.2 billion euros ($7.2 billion) in full-year adjusted operating income globally, down from 7.8 billion last year, had become more challenging, citing a weaker economy.

Covestro (1COV.DE), a rival maker of chemicals for insulation slabs and upholstery foams, on Tuesday cut its earnings guidance as soaring gas and raw material prices burden heavy industry players across Europe.  

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