BASF Plans Major Cutbacks at Ludwigshafen

27.02.2023 - Major changes are in store for BASF, as the world’s largest chemical producer comes to grips with severe pressure on profits from soaring energy prices.

Due to Russia’s invasion of Ukraine and the resulting gas crunch, the next few years will be watershed years at the group’s home base in Ludwigshafen.

For several decades, successive BASF chief executives have done some heavy lifting to move the asset base downstream, with a modicum of success. However, after the events of the past year, the base chemicals portfolio the German group has hung onto at its headquarters site for the sake of its integrated (Verbund) network now threatens to be a drag on earnings for the foreseeable future.

At the group’s annual financial results presentation on Feb. 24, which ironically coincided with the first anniversary of the invasion of Ukraine, CEO Martin Brudermülller outlined the consequences of the new status quo in which BASF’s global energy costs, led by natural gas, rose €3.2 billion year-on-year, and Europe, in particular Germany, bore most of the burden.

The dramatic readjustments over the next several years call for a net global reduction of 2,600 jobs — mainly in production — across the workforce, with about two-thirds affecting Europe. In actual terms, this means that more than 4,000 jobs are to be slashed while new positions will be created in so-called services hubs, such as the ones in Berlin or Madrid, where initial steps in that direction were taken several years ago.

With 700 positions to be axed, Ludwigshafen will be hit hard by the employment cutbacks. The closure of the 300,000 t/y plant for polyurethanes precursor TDI will account for the lion’s share and could conceivably be the most expensive as it is only seven years old.

The facility that cost €1 billion to build went on stream in late 2015 after a series of setbacks during the construction and start-up phases. Work was stopped for an extended period, when an unexploded World War 2 bomb was found at the excavation site. After start-up, a phosgene reactor had to be replaced.

Outlining why this plant, which also produces the related starting materials DNT and TDA, has been earmarked for shutdown, Brudermüller explained that in recent years, demand for TDI has not grown as expected. Order volume has been especially weak in Europe, the Middle East and Africa, no change is expected, and energy costs are unlikely to substantially recede.

After the TDI shutdown in Ludwigshafen, BASF plans to supply Europe from its facilities in Geismar, Louisiana, Yeosu, South Korea and Shanghai, China. Northwest European customers theoretically could also be supplied by Covestro’s German plant. The 300,000 t/y facility was completed by the former Bayer MaterialScience a year ahead of BASF’s.

BASF also has taken a final decision to shutter one of its two ammonia plants, which is also a large gas consumer. Ammonia output at Ludwighshafen has been running at reduced rates for some time, due to the high gas costs. Brudermüller told journalists last spring that it was cheaper to buy the commodity on the open market.

The drawdown of ammonia production will affect production of polyamide feedstock caprolactam. As a consequence, BASF is also planning to close its Ludwigshafen plant, while its facility at Antwerp will remain on stream. Analysts expect another former Bayer unit, this time Lanxess, to benefit from the reduced competition.

Also at headquarters, BASF plans to reduce its output of adipic acid and close the precursor plants for cyclohexanol and cyclohexanone as well as a soda ash unit. The adipic acid plan at Chalampé, France, will not be affected by the closure plans.

Through the adjustments in production, BASF said it expects to save altogether around €200 million annually, starting in 2026. The structural changes are expected to lead to a “significant” reduction in power and natural gas demand at Ludwigshafen. Consequently, CO2 emissions at the site will decline by around 0.9 million t/y and cut global CO2 emissions by 4%.

Alongside the group’s home base, Brudermüller stressed that, due especially to the higher energy costs, spending on European operations will also be gradually reduced as BASF continues to build up its presence in China.

From 2023 to 2027, global capital spending will rise to €28.8 billion from €25.6 billion in the last budget, benefiting two major growth projects: the growing site in Zhanjiang and the group’s battery materials activities. These two “growth pillars“ will on average account for roughly €2.7 billion of annual spending over the next five years, the CEO said.

Thanks especially to the Chinese projects, the Asia-Pacific region’s share will rise to 47%, while Europe will account for 36% and North America 15%.  Brudermüller defended the shift in focus to Asia and particularly China, arguing that this is the only region enjoying substantial growth.

Despite concerns about the China emphasis from several quarters, including within his own management team, as China may have it sights on invading Taiwan, the CEO has defended the strategy. BASF announced last week, however, that managing board member Saori Dubourg, who according to reports publicly criticized the Chinese expansion, was stepping down.

Author: Dede Williams, Freelance Journalist