The Urethane Blog

BASF Investors’ Call Highlights

Martin Brudermuller

Good morning, ladies and gentlemen, and thank you for joining us. We hope you and your families are doing well.

During the last couple of weeks, we have seen how difficult it is to contain the pandemic as the spread of the virus is sharply increasing again in many countries worldwide. At BASF, we are doing everything we can to work safely in this environment. We have reintroduced stricter measures that were no longer necessary during the summer months, but now they are advisable again.

On October 9, BASF released preliminary figures for the third quarter of 2020 and published an outlook for the full year 2020. Today, we will provide you with further details.

To begin with, let’s turn to the macroeconomic environment. The indicators for Q3 2020 are estimates as most countries have not yet published their figures for the quarter. Overall, the macroeconomic indicators improved in Q3 2020 compared with Q2 2020. However, the future macroeconomic development remains very uncertain.

According to the preliminary data, global chemical production was slightly positive in Q3 2020 compared with the prior year quarter. The resilience of chemical demand in some highly relevant customer industries is one reason for that. Another reason is China. The country continues its V-shaped recovery. Regarding the development in other regions, the bottom seems to have been reached and a gradual recovery is occurring.

Global GDP and global industrial production declined by 4.3% and 3.0%, respectively, compared with the prior year quarter. Global automotive production was still around 2% below the prior year quarter. For the full year 2020, we now expect light vehicle production to decline by around 20%, while we previously had assumed a decline of 27%.

On this slide, you can see how regional macroeconomic developments are reflected in our volume growth by region. Overall, BASF Group sales volumes were 2% lower in Q3 2020 compared with Q3 2019. This was driven by lower volumes in July and August, while we achieved a 4% volume increase in September 2020 compared with September 2019.

In Europe, volume growth improved in the course of the quarter and turned positive in September. In the U.S., volume growth compared with the prior year months remained negative due to the outage of the steam cracker in Port Arthur, Texas. Excluding this effect, volumes in the U.S. would also have turned positive in September. In the meantime, the Port Arthur cracker is back on stream.

In contrast, we recorded double-digit volume growth in Greater China across almost all segments over all 3 months in Q3 2020. We continue to benefit from our strong position in China. The planned new for Verbund site in Guangdong province will further increase our presence and customer proximity in the dynamically growing Chinese market.

This graph shows the gap between average daily order entries in April to September compared with the prior year months, that it is slowly narrowing. A look at the October month-to-date figures reveals that daily orders are still slightly below the prior year month. The recent worsening of the infection situation worldwide is jeopardizing this development and might again negatively impact our order entry in the coming months.

As in the prior quarters, customers remain very cautious and are ordering lower volumes more frequently. About 50% of our orders on hand across BASF are booked during the next month. Another 30% of all orders have a delivery date in the month after that. This means that 80% of all our orders on hand will be booked within the next 2 months, and we continue to have no clear view beyond that.

Let us now turn to the volume development by segment. Compared with the prior year’s quarter, sales volume declined by 2% on BASF Group level. This volume decline was mainly driven by the Chemicals segment. Here, the cracker outage in Port Arthur burdened the volumes development. On a BASF Group level, the cracker outage had a negative volume effect of around 1% in Q3 2020. It thus accounted for half of the decline.

In the Materials and Industrial Solutions segment, we also recorded lower volumes, mainly due to lower demand from the automotive industry. In Other, volumes declined on account of lower raw material trading activities.

In the Materials segment, EBIT before special items decreased considerably due to lower earnings in the Monomers division. Lower volumes and prices for polyamides were the main reason for this decline. Higher isocyanate margins due to lower raw material prices and increased MDI volumes could only partially offset this.

https://seekingalpha.com/article/4382343-basf-se-basfy-ceo-martin-brudermuller-on-q3-2020-results-earnings-call-transcript?part=single