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July 28, 2022
C.H. Robinson surpasses profitability expectations
Earnings per share for 3PL rose 85.4% year over year to $2.67
Tony MulveyWednesday, July 27, 2022 3 minutes read
Listen to this article 0:00 / 5:25 BeyondWords
C.H. Robinson released financial results for the second quarter Wednesday, and North America’s largest pure play 3PL blew past Wall Street’s expectations for profitability.
The company reported diluted earnings per share of $2.67 compared to consensus estimates of $1.99, good for an 85.4% increase on a year-over-year (y/y) basis.
C.H. Robinson’s total revenue came in at $6.8 billion, in line with market expectations and an increase of 22.9% compared to the year-ago period. The company’s adjusted gross profit increased by 37.7% y/y, citing higher adjusted gross profits across all of its segments.
The company’s profitability benefited from its ability to purchase capacity both domestically and internationally, combined with a complex and volatile freight environment.
“Our second quarter was another quarter of record profits, as our business model performed as we would expect it to in this part of the cycle,” Bob Biesterfeld, president and CEO of C.H. Robinson, said in the news release.
The company’s North American Surface Transportation (NAST) segment reported revenue growth of 15.7% compared to a year ago, up to $4.1 billion. The company cited higher pricing for both truckload and less-than-truckload customers as well as an increase in truckload volumes. NAST revenues accounted for 61% of C.H. Robinson’s total revenue, down nearly 4 percentage points from last year.
NAST’s adjusted gross profit increased by 43.1% y/y to $624.6 million, the highest level on record, surpassing even the fourth quarter of 2018. Adjusted gross profit for the truckload segment of NAST increased by 50.8% y/y due to a 48% rise in adjusted gross profit per shipment and a 2% increase in truckload volumes.
“Our strong results were again driven by significant operating margin expansion in our North American Surface Transportation business, as we further improved the profitability of our truckload and less-than truckload businesses and grew our truckload volume in a declining market,” Biesterfeld said.
SONAR: VCRPM1.USA (blue, right axis) and NTIL.USA (green, left axis)
To learn more about FreightWaves SONAR,click here.
The company’s average truckload rate per mile, excluding fuel surcharge, increased by 1.5% compared to the same period a year ago. Conversely, the truckload linehaul costs, or the company’s buy rate, declined by 5%, resulting in a 46.5% increase in adjusted gross profit per mile.
LTL adjusted gross profit increased by 30.2% y/y despite a 5% decline in LTL volumes during Q2.
The segment also experienced inflationary pressures as operating expenses — increased salaries, incentive compensation and technology — increased by 21.9% y/y, according to C.H. Robinson. The company increased NAST headcount by 14.8% y/y during the quarter.
Source: Company earnings, FreightWaves analysis
The segment’s adjusted gross margin percentage did expand by 290 basis points y/y to 15.1%, a 280 bps increase sequentially.
Global Forwarding, another segment of C.H. Robinson, took a slight breather in Q2 as revenues increased by 44.3% y/y, compared to the 89.8% growth in Q2, to $2.1 billion. Sequentially, Global Forwarding revenue declined by 4.6%. The segment’s adjusted gross profit increased by 35.9% to $324.4 million.
The company expanded adjusted gross profit on the ocean and in the air. Ocean adjusted gross profit increased by 51.1%, thanks to a 47.5% increase in adjusted gross profit per shipment and a 2.5% rise in shipments. Adjusted gross profit in the air increased by 7.5%, benefiting from a 14% jump in adjusted gross profit per metric ton shipped, offsetting the 6% decline in metric tons shipped.
Global Forwarding followed a similar pattern to NAST when it came to operating expenses. The segment’s operating expense increased by 20.2%, driven by the most of the same factors: increased salaries, incentive compensation, technology and travel expenses. The company continues to hire, growing the Global Forwarding headcount by 17.3% in the quarter.
All other corporate results, which include Robinson Fresh, Managed Services and Other Surface Transportation, experienced revenue growth of 12.4% to $558.2 million. Adjusted gross profit for Robinson Fresh increased 16.8% to $35 million; Managed Services rose 5.3% to $27.6 million, a sequential decline of $500,000; and Other Surface Transportation jumped 13.4% to $20 million.
Biesterfeld noted that amid lingering questions about the global economy, inflationary pressures and consumer spending, C.H. Robinson’s business model puts the company in position to provide continued strong financial results.
July 28, 2022
Propylene oxide (PO) is the third largest propylene derivative after polypropylene and acrylonitrile. It can be made into polyurethane foam, it can also be made into fourth-generation detergent non-ionic surfactant, oil field demulsifier, pesticide emulsifier, etc. Derivatives of propylene oxide are widely used in furniture, home appliances, automobiles, construction, coatings and other industries. The production process of propylene oxide is mainly divided into direct oxidation method (HPPO), co-oxidation method (PO/SM or PO/TBA-MTBE) and chlorohydrin method (CHPO). The chlorohydrin process technology is relatively mature, the production process is relatively safe, and the investment required is small. With the relevant guidance documents promulgated by the government in 2011 and the state’s goal of “carbon peaking” and “carbon neutrality”, various administrative regions have implemented “dual control” measures. Under the overall environmental protection policy, the propylene oxide chlorohydrin method will generate more “three wastes”, and the cost of environmental protection treatment will be higher in the later stage. It is expected that with the continuous development of the industry, the co-oxidation method and the direct oxidation method will continue to improve. 
Since March 2020, the prices of propane and naphtha (hydrogenation) in my country have shown a continuous growth trend, mainly due to the rise in crude oil prices and the accumulation of demand for enterprises to resume work and production after the epidemic. On the whole, since 2020, upstream raw materials The increase in part led to the increase in the price of propylene oxide. The main products downstream of propylene oxide are polyether polyol, propylene glycol methyl ether, dimethyl carbonate, propylene glycol ether, etc. Polyether polyol is the largest downstream of propylene oxide, accounting for about 77.2% of the demand for propylene oxide. It is mainly used in the production of polyurethane foam. Its terminal downstream mainly includes white goods, building materials (mainly coatings), furniture and automobiles. In addition, the downstream product DMC (dimethyl carbonate), as the main lithium battery electrolyte solvent (transesterification method), benefits from the continuous growth of downstream new energy vehicle demand, and is expected to become a key demand growth point for propylene oxide. In 2021, as the domestic production capacity continues to be put into operation, the production capacity of propylene oxide in China continues to grow. In addition, the industry maintains a high degree of prosperity in the first half of the year, and the overall output rises significantly. Throughout the year, the output still increased by more than 30%. According to data, my country’s propylene oxide output in 2021 will be 3.46 million tons, a new high in recent years. 2023 is expected to be the year with the most new capacity additions, reaching 2.78 million tons. In the future, with the release of new production capacity, the supply of propylene oxide in my country will be able to meet the continuously growing demand, the import dependence is expected to decrease, and the supply and demand of propylene oxide market will tend to be relaxed. Future global market opportunities for propylene oxide in China In 2020, the Ministry of Commerce opened restrictions on the export of ECH for direct oxidation and co-oxidation processes; Weak domestic demand coupled with the expansion of production capacity, by the end of 2022, a total of nearly 2.5 million tons of new production capacity will be started. The import volume of propane will be reduced to less than 100,000 tons, and there will be an obvious turning point in the import and export next year)
If you have interesting about this material, please feel free to contact us.(chemical@echemi.com)
July 28, 2022
Propylene oxide (PO) is the third largest propylene derivative after polypropylene and acrylonitrile. It can be made into polyurethane foam, it can also be made into fourth-generation detergent non-ionic surfactant, oil field demulsifier, pesticide emulsifier, etc. Derivatives of propylene oxide are widely used in furniture, home appliances, automobiles, construction, coatings and other industries. The production process of propylene oxide is mainly divided into direct oxidation method (HPPO), co-oxidation method (PO/SM or PO/TBA-MTBE) and chlorohydrin method (CHPO). The chlorohydrin process technology is relatively mature, the production process is relatively safe, and the investment required is small. With the relevant guidance documents promulgated by the government in 2011 and the state’s goal of “carbon peaking” and “carbon neutrality”, various administrative regions have implemented “dual control” measures. Under the overall environmental protection policy, the propylene oxide chlorohydrin method will generate more “three wastes”, and the cost of environmental protection treatment will be higher in the later stage. It is expected that with the continuous development of the industry, the co-oxidation method and the direct oxidation method will continue to improve. Since March 2020, the prices of propane and naphtha (hydrogenation) in my country have shown a continuous growth trend, mainly due to the rise in crude oil prices and the accumulation of demand for enterprises to resume work and production after the epidemic. On the whole, since 2020, upstream raw materials The increase in part led to the increase in the price of propylene oxide. The main products downstream of propylene oxide are polyether polyol, propylene glycol methyl ether, dimethyl carbonate, propylene glycol ether, etc. Polyether polyol is the largest downstream of propylene oxide, accounting for about 77.2% of the demand for propylene oxide. It is mainly used in the production of polyurethane foam. Its terminal downstream mainly includes white goods, building materials (mainly coatings), furniture and automobiles. In addition, the downstream product DMC (dimethyl carbonate), as the main lithium battery electrolyte solvent (transesterification method), benefits from the continuous growth of downstream new energy vehicle demand, and is expected to become a key demand growth point for propylene oxide. In 2021, as the domestic production capacity continues to be put into operation, the production capacity of propylene oxide in China continues to grow. In addition, the industry maintains a high degree of prosperity in the first half of the year, and the overall output rises significantly. Throughout the year, the output still increased by more than 30%. According to data, my country’s propylene oxide output in 2021 will be 3.46 million tons, a new high in recent years. 2023 is expected to be the year with the most new capacity additions, reaching 2.78 million tons. In the future, with the release of new production capacity, the supply of propylene oxide in my country will be able to meet the continuously growing demand, the import dependence is expected to decrease, and the supply and demand of propylene oxide market will tend to be relaxed. Future global market opportunities for propylene oxide in China In 2020, the Ministry of Commerce opened restrictions on the export of ECH for direct oxidation and co-oxidation processes; Weak domestic demand coupled with the expansion of production capacity, by the end of 2022, a total of nearly 2.5 million tons of new production capacity will be started. The import volume of propane will be reduced to less than 100,000 tons, and there will be an obvious turning point in the import and export next year)
If you have interesting about this material, please feel free to contact us.(chemical@echemi.com)
July 28, 2022
BASF SE (BASFY) CEO Martin Brudermüller on H1 2022 Results – Earnings Call Transcript
Jul. 27, 2022 11:00 AM ETBASF SE (BASFY), BFFAF1 Like
BASF SE (OTCQX:BASFY) H1 2022 Results Earnings Conference Call July 27, 2022 4:00 AM ET
Company Participants
Nina Schwab-Hautzinger – Senior Vice President, Corporate Communications and Government Relations
Martin Brudermüller – Chairman of the Board of Executive Directors
Hans-Ulrich Engel – Chief Financial Officer
Stefanie Wettberg – Senior Vice President Investor Relations
Martin Brudermüller
Good morning, ladies and gentlemen. On July 11, BASF released preliminary figures for the second quarter of 2022. Today, Has Engel and I will provide you with further details regarding our business development.
In the second quarter, BASF again delivered strong earnings despite continued high raw material costs and energy prices. To put the BASF team’s performance into perspective, let’s begin with a snapshot of the current macroeconomic environment.
Compared to quarter one 2022, the uncertainty and intransparency regarding the short- and mid-term economic development have increased. The main reasons for this are the ongoing war in Ukraine, the risks associated with natural gas supplies in Europe and the resulting high prices for raw materials and energy, as well as China’s zero COVID strategy and related lockdowns.
Despite these challenges, the demand from our customer industries remained generally solid. However, global automotive industry and production in the second quarter of 2022 declined by 6% compared with Q1 2022.
For 2022, IHS Markit has adjusted its forecast to about 80.8 million units. This is a reduction of around 2.1 million units compared with the forecast of the beginning of the year.
In the second quarter of 2022, China’s economic growth was negatively impacted by the severe lockdowns in several large cities, particularly in Shanghai. In the second half of 2022, China’s economic development is expected to improve, mainly due to a more differentiated strategy to tackle the coronavirus and dedicated financial stimulus measures by the Chinese government, particularly for the automotive industry. To counter high inflation, central banks have started to raise interest rates. This will increasingly impact demand in the coming months and reduce growth in 2023.
Let’s now briefly look at chemical production by region in Q2 2022 before we turn to the financial performance of BASF. According to the currently available data, global chemical production increased by just 1.3%. Despite a strong comparison base and the pandemic-related lockdown, chemical production in China increased by 3.1%, with 2.5% chemical production also grew in North America. By contrast, chemical production declined by 2.6% in Europe and by 0.6% in Asia excluding China.
I will now move on to the BASF business development in Q2 2022. Our upstream and downstream businesses successfully implemented further price increases and largely passed on the higher prices for raw materials and energy.
Due to the lockdowns in China, BASF sales volumes in the country declined by 17.4% in the second quarter of 2022 compared with an increase of 10.4% in Q2 2021. This change was driven by significantly lower sales volumes in April. Sequentially, however, sales volume recovered again strongly in May and June.
In Q2 2022, EBIT before special items was at the level of the very strong prior year quarter and amounted to €2.3 billion. The higher earnings were driven by the agricultural solutions, nutrition and care and industrial solution segments. Other also contributed to the positive performance in Q2 2022.
I would like to add that the positive business development in the second quarter of 2022 continued in July. Since we are often asked about this, I would like to stress once again. Currently, all of BASF European sites are supplied with natural gas in line with demand. We are monitoring developments very closely, in particular at our largest site in Ludwigshafen, where we use considerable amount of gas.
In this context, I will therefore briefly address the details of the alert level regarding gas supply declared by the German government on June 23, 2022. The second stage of the emergency plan for gas comprises four key measures that leave responsibilities and market mechanisms intact.
First, all market participants such as gas suppliers, gas traders, all network operators are obliged to take coordinated action to avoid temporary or regional gaps in supply in Germany and to achieve the target fill level of 85% for German gas storage facilities on October 1. To this end, the market area manager Trading Hub Europe has received an additional credit line of €15 billion from the federal government to purchase gas.
Second, market participants including BASF are obliged to participate in a crisis team that must report to the Federal Ministry of Economic Affairs on a daily basis.
Third, the German government is taking legal measures to restart coal-fired power plants in Germany to contribute to electricity production and safe gas in power production.
And fourth, Germany’s federal network agency wants to open a market platform where gas that is not required by companies can be auctioned.
In the following, I also want to commend on the third and final emergency stage of the emergency plan for gas. This stage comes into force when there is an unexceptionally high demand for natural gas, a significant disruption in natural gas supplies or other significant deterioration in the supply situation.
Then, according to the regulations, non-market-based measures must be taken to ensure natural gas supplies, in particular, to protected customers. According to the Ministry of Economic Affairs, the federal network agency will become the federal load dispatcher, and will regulate the distribution of natural gas in coordination with the network operators.
In this process, certain consumer groups are particularly protected. These groups include households, social institutions, such as hospitals and gas-fired power plants, that also supply heat to households, but they also include industrial companies that manufacture products that are crucial for society. In this case, gas is allocated according to the relevance of the company to society.
We are coordinating closely with the government agencies, suppliers and network operators. Should the German government declare the third and final emergency stage, we currently expect that BASF would still receive sufficient natural gas to maintain operations at the Ludwigshafen site at reduced load.
We are also confident with regard to Schwarzheide, our second largest site in Germany, here, for example, we are able to generate 100% of our power and steam demand using fuel oil. For BASF production sites outside of Europe, we expect hardly any impact in the event of a European gas shortage.
I will now provide you with further details regarding our natural gas demand in Europe and give an update on our mitigation measures in the event of natural gas supply shortages.
In 2021, BASF natural gas demand in Europe amounted to 48 terawatt hours, whereof 37 terawatt hours were consumed in Ludwigshafen. In Europe, we use around 60% of our natural gas demand to produce power and steam. The remaining 40% is used as feedstock.
At our Verbund site in Ludwigshafen, the split is around 50% for each of the two categories. If the natural gas supply does not fall below around 50% of our maximum demand, we will be able to operate the Verbund in Ludwigshafen at a reduced load.
Our mitigation measures include the following. Where technically feasible, the preparations to substitute natural gas, for example, to fuel oil are progressing well and technical optimizations are in place. In addition, we have developed scenarios and implemented measures to optimize production at our European sites. We are reducing production at facilities that require large amounts of natural gas such as ammonia plants. This is standard practice in the chemical industry, for example, when margins are not economically viable.
The graph on this slide shows the largest consumers of natural gas at the Ludwigshafen . Ammonia is the largest natural gas consumer, with around 50% of the total demand as feedstock.
In contrast to some other gas consumers at the Ludwigshafen site, external sourcing of ammonia is possible. Externally sourced ammonia is therefore an important element of our risk mitigation considerations in the event of a major curtailment of natural gas volume.
The second biggest consumer is the acetylene plant, followed by syngas production. Together, both plants account for almost another 25% of the total natural gas demand as a feedstock. Power and steam production at Ludwigshafen can partially be switched to fuel oil, and that’s substituting around 15% of the natural gas otherwise needed for this.
Compared with Q1 2022, natural gas prices declined slightly in the second quarter of 2022, but remained on very high level. In Q2 2022, the additional cost for BASF European sites amounted to €800 million compared with the same quarter of 2021. In comparison with the second quarter of 2020, the increase was €1 billion. To mitigate these higher costs, we have implemented and will continue to implement further price increase.
I will now move on to the volume development by segment. In the second quarter of 2022, sales volumes of BASF Group declined slightly. This was mainly due to a lower precious metal volumes, which accounted for 99% of the volume decline in the Surface Technologies segment. Excluding this effect, BASF sales volumes were almost stable with minus 0.2% compared with the second quarter of 2021.
On a segment level, Agricultural Solutions and Nutrition & Care saw a positive volume development.
Markus Mayer
One of several – more questions on the guidance basically. Have I understood it correctly that you are still confident to reach top end of your EBIT guidance range. And also, as an add-on question to this, the potential production cuts in BDO, ammonia and acetylene is already included in the guidance as in the lower end, I guess, or is it basically already still outside of the guidance? And also, the cost reduction measures, have they been already included in the guidance?
Martin Brudermüller
So, I think this is all I think a realistic picture. Yes, we think we can reach the upper level. Basically, I hope that was seen right from you, what we described as a kind of a soft landing towards the year end. So, nothing going rigorously down, but it is softening on the demand side. And that means supply/demand is softening, but that means also pricing power is softening. So, this all goes basically weaker and actually the idea is that when the softening and the weakening of the margins is counteracted by some of the cost reductions, this is partially postponement, which I think is also natural to think about, when do you need what when you are in a softer environment, but it also might come down to the point that we also think structurally to cut some of the costs and really go to lower overall cost basis. So, that includes certainly also our assumptions, which kind of products we might reduce and we might buy in, and ammonia, you mentioned, is actually the biggest factor here. So I think you should take that with a lot of positive confidence from our side.
July 28, 2022
BASF SE (BASFY) CEO Martin Brudermüller on H1 2022 Results – Earnings Call Transcript
Jul. 27, 2022 11:00 AM ETBASF SE (BASFY), BFFAF1 Like
BASF SE (OTCQX:BASFY) H1 2022 Results Earnings Conference Call July 27, 2022 4:00 AM ET
Company Participants
Nina Schwab-Hautzinger – Senior Vice President, Corporate Communications and Government Relations
Martin Brudermüller – Chairman of the Board of Executive Directors
Hans-Ulrich Engel – Chief Financial Officer
Stefanie Wettberg – Senior Vice President Investor Relations
Martin Brudermüller
Good morning, ladies and gentlemen. On July 11, BASF released preliminary figures for the second quarter of 2022. Today, Has Engel and I will provide you with further details regarding our business development.
In the second quarter, BASF again delivered strong earnings despite continued high raw material costs and energy prices. To put the BASF team’s performance into perspective, let’s begin with a snapshot of the current macroeconomic environment.
Compared to quarter one 2022, the uncertainty and intransparency regarding the short- and mid-term economic development have increased. The main reasons for this are the ongoing war in Ukraine, the risks associated with natural gas supplies in Europe and the resulting high prices for raw materials and energy, as well as China’s zero COVID strategy and related lockdowns.
Despite these challenges, the demand from our customer industries remained generally solid. However, global automotive industry and production in the second quarter of 2022 declined by 6% compared with Q1 2022.
For 2022, IHS Markit has adjusted its forecast to about 80.8 million units. This is a reduction of around 2.1 million units compared with the forecast of the beginning of the year.
In the second quarter of 2022, China’s economic growth was negatively impacted by the severe lockdowns in several large cities, particularly in Shanghai. In the second half of 2022, China’s economic development is expected to improve, mainly due to a more differentiated strategy to tackle the coronavirus and dedicated financial stimulus measures by the Chinese government, particularly for the automotive industry. To counter high inflation, central banks have started to raise interest rates. This will increasingly impact demand in the coming months and reduce growth in 2023.
Let’s now briefly look at chemical production by region in Q2 2022 before we turn to the financial performance of BASF. According to the currently available data, global chemical production increased by just 1.3%. Despite a strong comparison base and the pandemic-related lockdown, chemical production in China increased by 3.1%, with 2.5% chemical production also grew in North America. By contrast, chemical production declined by 2.6% in Europe and by 0.6% in Asia excluding China.
I will now move on to the BASF business development in Q2 2022. Our upstream and downstream businesses successfully implemented further price increases and largely passed on the higher prices for raw materials and energy.
Due to the lockdowns in China, BASF sales volumes in the country declined by 17.4% in the second quarter of 2022 compared with an increase of 10.4% in Q2 2021. This change was driven by significantly lower sales volumes in April. Sequentially, however, sales volume recovered again strongly in May and June.
In Q2 2022, EBIT before special items was at the level of the very strong prior year quarter and amounted to €2.3 billion. The higher earnings were driven by the agricultural solutions, nutrition and care and industrial solution segments. Other also contributed to the positive performance in Q2 2022.
I would like to add that the positive business development in the second quarter of 2022 continued in July. Since we are often asked about this, I would like to stress once again. Currently, all of BASF European sites are supplied with natural gas in line with demand. We are monitoring developments very closely, in particular at our largest site in Ludwigshafen, where we use considerable amount of gas.
In this context, I will therefore briefly address the details of the alert level regarding gas supply declared by the German government on June 23, 2022. The second stage of the emergency plan for gas comprises four key measures that leave responsibilities and market mechanisms intact.
First, all market participants such as gas suppliers, gas traders, all network operators are obliged to take coordinated action to avoid temporary or regional gaps in supply in Germany and to achieve the target fill level of 85% for German gas storage facilities on October 1. To this end, the market area manager Trading Hub Europe has received an additional credit line of €15 billion from the federal government to purchase gas.
Second, market participants including BASF are obliged to participate in a crisis team that must report to the Federal Ministry of Economic Affairs on a daily basis.
Third, the German government is taking legal measures to restart coal-fired power plants in Germany to contribute to electricity production and safe gas in power production.
And fourth, Germany’s federal network agency wants to open a market platform where gas that is not required by companies can be auctioned.
In the following, I also want to commend on the third and final emergency stage of the emergency plan for gas. This stage comes into force when there is an unexceptionally high demand for natural gas, a significant disruption in natural gas supplies or other significant deterioration in the supply situation.
Then, according to the regulations, non-market-based measures must be taken to ensure natural gas supplies, in particular, to protected customers. According to the Ministry of Economic Affairs, the federal network agency will become the federal load dispatcher, and will regulate the distribution of natural gas in coordination with the network operators.
In this process, certain consumer groups are particularly protected. These groups include households, social institutions, such as hospitals and gas-fired power plants, that also supply heat to households, but they also include industrial companies that manufacture products that are crucial for society. In this case, gas is allocated according to the relevance of the company to society.
We are coordinating closely with the government agencies, suppliers and network operators. Should the German government declare the third and final emergency stage, we currently expect that BASF would still receive sufficient natural gas to maintain operations at the Ludwigshafen site at reduced load.
We are also confident with regard to Schwarzheide, our second largest site in Germany, here, for example, we are able to generate 100% of our power and steam demand using fuel oil. For BASF production sites outside of Europe, we expect hardly any impact in the event of a European gas shortage.
I will now provide you with further details regarding our natural gas demand in Europe and give an update on our mitigation measures in the event of natural gas supply shortages.
In 2021, BASF natural gas demand in Europe amounted to 48 terawatt hours, whereof 37 terawatt hours were consumed in Ludwigshafen. In Europe, we use around 60% of our natural gas demand to produce power and steam. The remaining 40% is used as feedstock.
At our Verbund site in Ludwigshafen, the split is around 50% for each of the two categories. If the natural gas supply does not fall below around 50% of our maximum demand, we will be able to operate the Verbund in Ludwigshafen at a reduced load.
Our mitigation measures include the following. Where technically feasible, the preparations to substitute natural gas, for example, to fuel oil are progressing well and technical optimizations are in place. In addition, we have developed scenarios and implemented measures to optimize production at our European sites. We are reducing production at facilities that require large amounts of natural gas such as ammonia plants. This is standard practice in the chemical industry, for example, when margins are not economically viable.
The graph on this slide shows the largest consumers of natural gas at the Ludwigshafen . Ammonia is the largest natural gas consumer, with around 50% of the total demand as feedstock.
In contrast to some other gas consumers at the Ludwigshafen site, external sourcing of ammonia is possible. Externally sourced ammonia is therefore an important element of our risk mitigation considerations in the event of a major curtailment of natural gas volume.
The second biggest consumer is the acetylene plant, followed by syngas production. Together, both plants account for almost another 25% of the total natural gas demand as a feedstock. Power and steam production at Ludwigshafen can partially be switched to fuel oil, and that’s substituting around 15% of the natural gas otherwise needed for this.
Compared with Q1 2022, natural gas prices declined slightly in the second quarter of 2022, but remained on very high level. In Q2 2022, the additional cost for BASF European sites amounted to €800 million compared with the same quarter of 2021. In comparison with the second quarter of 2020, the increase was €1 billion. To mitigate these higher costs, we have implemented and will continue to implement further price increase.
I will now move on to the volume development by segment. In the second quarter of 2022, sales volumes of BASF Group declined slightly. This was mainly due to a lower precious metal volumes, which accounted for 99% of the volume decline in the Surface Technologies segment. Excluding this effect, BASF sales volumes were almost stable with minus 0.2% compared with the second quarter of 2021.
On a segment level, Agricultural Solutions and Nutrition & Care saw a positive volume development.
Markus Mayer
One of several – more questions on the guidance basically. Have I understood it correctly that you are still confident to reach top end of your EBIT guidance range. And also, as an add-on question to this, the potential production cuts in BDO, ammonia and acetylene is already included in the guidance as in the lower end, I guess, or is it basically already still outside of the guidance? And also, the cost reduction measures, have they been already included in the guidance?
Martin Brudermüller
So, I think this is all I think a realistic picture. Yes, we think we can reach the upper level. Basically, I hope that was seen right from you, what we described as a kind of a soft landing towards the year end. So, nothing going rigorously down, but it is softening on the demand side. And that means supply/demand is softening, but that means also pricing power is softening. So, this all goes basically weaker and actually the idea is that when the softening and the weakening of the margins is counteracted by some of the cost reductions, this is partially postponement, which I think is also natural to think about, when do you need what when you are in a softer environment, but it also might come down to the point that we also think structurally to cut some of the costs and really go to lower overall cost basis. So, that includes certainly also our assumptions, which kind of products we might reduce and we might buy in, and ammonia, you mentioned, is actually the biggest factor here. So I think you should take that with a lot of positive confidence from our side.
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