The Urethane Blog

BASF Investors’ Call Highlights

Martin Brudermüller

Good morning, ladies and gentlemen, and thank you for joining us. On July 10, BASF released preliminary figures for the second quarter. And today, we will provide you with further details.

I hope you and your families are doing well. COVID-19 is still a huge challenge for all of us. It is, however, also a catalyst for change and an opportunity to do things differently in future. At BASF, we have quickly adapted to new digital processes and virtual communication. Decision making becomes faster and customer relationships intensify.

Most importantly, the BASF team works together closely. And this has always been our strength, and this is how we have overcome crises in the past. And it is how we will do this now, with an even stronger focus on our customers. We are actively managing this crisis. Our diversified portfolio and our solid financials are strong assets in these times.

Let’s turn to the macroeconomic environment first. The indicators for Q2 2020 are estimates as most of the countries have not yet published their figures for the quarter. The future macroeconomic development is still uncertain and not yet transparent. Forecasts are constantly changing. The slide illustrates how global chemical production growth deteriorated during the past few months.

During the second quarter, the impact of the pandemic was more pronounced in Europe and North America than in Q1 due to the timing of the spread of the virus and the related lockdowns.

According to the preliminary data, global chemical production decreased by 4% compared to Q2 2019. The resilience of chemical demand in some important customer industries is one reason why the decline in global chemical production is not substantially steeper.

Another reason is China: The country has embarked on a V-shaped recovery. The coming months will show whether retail sales and consumer spending will still rise with production levels. Going forward, it is crucial that global demand returns to a reliable solid level. This is not yet visible.

Global GDP and global industrial production both decreased by 10% compared to the prior-year quarter. The automotive industry has hit – was hit hardest by the demand collapse, production stoppages and supply chain disruptions.

In Q2 2020, global automotive production dropped by 45% compared to Q2 2019. Excluding China, the drop in automotive production in Q2 amounted to around 60%. For the full year 2020, we now expect global automotive production to decline by 27%.

To create as much transparency as possible for you today, we will provide you with more detailed information than usual. I will show you BASF’s sales volumes by region on a monthly basis. While BASF’s total volumes dropped by 11% in Q2, the development of regional demand is clearly reflected in our books.

In May 2020, the COVID-19 effect was especially pronounced in Europe and North America. Compared to May 2019, BASF’s sales volumes in Europe and in North America declined by 27%, while we already saw a volume increase of 13% in Greater China.

In June 2020, BASF Group’s sales volumes grew globally by 1% due to considerably higher volumes in Greater China and slightly higher volumes in North America, the latter due to the cracker turnaround in here Q2 2019. This increase was partly offset by a volume decline of 7% in Europe.

Let’s now have a look at how the pandemic affected growth in BASF’s key customer industries. This external data is preliminary as well. The impact of COVID-19 and the corresponding lockdowns differ greatly by customer industry.

In Q2 2020, global automotive growth decreased by 45% following the lockdowns especially in Europe and North America. Industries such as energy and resources, consumer goods and construction were also considerably impacted, but significantly less than automotive.

In contrast, the nutrition and health and pharma industries were resilient or even benefited partially from the pandemic. Semiconductors, which form part of the electronics industry, have grown in Q2 as well. This chart also exemplifies that it is still almost impossible to make reliable forecasts regarding the future growth of our key customer industries at this time.

A look into July reveals that daily orders are still below last year’s level. The graph also shows that the gap between average daily order entries in April to July compared to the prior year months is slowly narrowing. With a seasonally rather weak August ahead of us, it remains to be seen by when the gap can be closed.

Customers remain very cautious and are ordering lower volumes more frequently. About 50% of 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. Thus, 80% of all our orders on hand will be booked within the next two months. And we have no clear view beyond that.

Compared to the prior year quarter, BASF Group’s sales volumes declined by 11% in Q2 2020. Not surprisingly, the decline was most pronounced in the segments supplying the automotive industry.

Surface Technologies, Materials and Industrial Solutions recorded a sharp decline in demand, following the temporary closure of practically all major automotive production sites in Europe and North America.

In contrast, we increased sales volumes in Nutrition & Care and Agricultural Solutions. Volumes in the Chemicals segment also went up. This was mainly due to scheduled cracker turnarounds in the prior year quarter, which had led to lower volumes.

Hans-Ulrich Engel

In the Materials segment, earnings decreased considerably in the Monomers and the Performance Materials divisions, mainly on account of the significantly lower demand from the automotive industry. In Monomers, primarily margins for isocyanates declined compared to Q2 2019 due to lower demand as a result of the pandemic.

Martin Brudermüller

Ladies and gentlemen, due to the continuing high uncertainty of the further economic development and the low visibility, we still refrain from making any concrete statements on the development of sales and earnings for the full year 2020 today.

For the third quarter of 2020, we currently do not expect EBIT before special items to improve significantly compared with the second quarter of 2020, in part due to the generally lower demand in August and the seasonality of the Agricultural Solutions business.

Our own recovery path from the corona pandemic is still as unclear as the medium and long-term macroeconomic development globally and by region. The risk of further infection waves with the corresponding impact from further lockdowns, as well as subdued customer demand in the midterm are the main reasons for that.

Without a swift and solid recovery and a positive midterm outlook, there is other risk, a certain risk of have to impair some of our assets. Today, we do not yet have sufficient transparency to assess the long-term economic impacts of the corona crisis and we are carefully analyzing various scenarios.

Laurent Favre

Other side in shut down in the second half? Especially weaker players, given your outlook, and I’m talking permanent shutdown, not temporary?

Hans-Ulrich Engel

Well, you see, when you see this happening here and here and there. There is a rather recent announcement, I think that came out last week on BDO plant in the US Gulf Coast by one of the competitors, but that is – actually that’s the only one that I saw so far.

Markus Mayer

Thank you. Good afternoon. Two question for my side as well. Firstly, maybe on the cost savings, could you help us on the phasing for this year? That would be very helpful. And then secondly, only a last – a small question. You announced this week a force majeure for your TDI Geismar plant in the U.S. Could you help us how long should we pencil in the lengths of this plant? And yes, that would be helpful. Thank you.

Martin Brudermüller

Yeah, to the second one, it will most probably be about two weeks. And first one you take, Hans.

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