BASF cuts full-year goals in face of slowing global economy

The world’s largest chemical maker, BASF, on Tuesday lowered its outlook for the year after a slump in oil prices weighed down on the company’s top line.

Lower oil prices, normally a boon to chemical companies that rely on petrochemical inputs, hurt BASF because of its oil and gas business, which accounted for 20 percent of 2014 sales.

Earnings before interest, taxes and one-time items fell 9.6 percent to 1.6 billion euros, less than analysts’ 1.65 billion-euro estimate.

“A pronounced summer lull” has contributed to a decline in sales at chemicals producer BASF, said Dr Kurt Bock, chairman of the board of executive directors, as the company revealed its third quarter results. BASF had initially been targeting a “slight increase” in sales, with EBIT before special items expected to stay flat year-over-year.

“In the first three quarters of 2015, growth in the global economy remained considerably below (our) expectations”, BASF said in a statement. “Major markets like Brazil are in a recession or face lower growth rates, such as China”, said Bock. Meanwhile, the sharp drop in the price of oil led to lower prices, primarily in the Chemicals and Oil & Gas segments.

In the eyes of investors, this was more significant than a modest rise in net profit to €1.2bn in the third quarter. “BASF has further reduced its expectations for the global economy in 2015”, the statement said.

Profits were hurt by lower volumes in the pigments business, weak demand for oilfield chemicals and tough competition in vitamins, among other factors.

Special items in EBIT totaled €286m in the third quarter, compared with minus €32m in the third quarter of 2014.

In September, BASF announced it had agreed with Russian gas behemoth Gazprom to go ahead with an asset swap the two had put on ice due to tensions between Russia and the West. The company said its income from operations before special items in 2015 will likely match the previous year’s level.

“We are therefore adjusting our outlook for 2015”.

BASF had been expected to adjust its guidance, though overall results were slightly below expectations, according to Peter Spengler, an analyst at DZ Bank.