Dow, BASF In The Black

The world's two largest chemical companies, BASF and Dow Chemical, surprised analysts by staying in the black in the first quarter.

In earnings reports released late last week, both firms said that company-wide cost cutting, lower raw material costs, and strong sales in agriculture businesses cushioned the impact of steeply lower volumes in chemicals, plastics, and specialties businesses. The two companies will further cut production and eliminate jobs.

At BASF, sales dropped 23% from last year's first quarter to $16.2 billion, and earnings fell by 64% to $573 million. In remarks to shareholders, Chairman Jürgen Hambrecht said BASF will cut at least 2,000 positions by the end of 2009 through plant closures and sales. There is "no sign of a turnaround," he said.

BASF's results were "significantly better than what I had expected and what the market expected," says Commerzbank chemical analyst Stephan Kippe. He says BASF was able to lower fixed costs by reacting quickly to low demand.

Dow reported sales of $9.1 billion, a 39% drop from last year. Earnings, at $109 million, were down 88% from first-quarter 2008. Dow's plastics and chemicals businesses saw both volumes and prices decline compared with the fourth quarter of 2008.

Dow CEO Andrew N. Liveris, in a conference call with analysts, said the firm will further reduce its workforce by shutting down several plants, including its ethylene cracker in Taft, La. To reduce its debt after the Rohm and Haas acquisition, Liveris said Dow is weighing divestments, including a sale or spin-off of its AgroSciences business.