High energy prices have already struck a blow to European competitiveness in chemical manufacturing. They are now prompting BASF to lay off thousands of workers and shut down sections of its flagship facility in Ludwigshafen, Germany.
The company, the world’s largest chemical maker, revealed the closures when it announced 2022 financial results on Feb. 24. Sales increased 11%, to $92.5 billion, but this was because of higher selling prices. The company’s sales volumes declined by 7% last year.
BASF posted a loss of about $660 million for the year, mostly owing to charges of $6.7 billion related to its decision to withdraw its Wintershall Dea oil and gas affiliate completely from Russia. Without those charges, the firm’s profits would have been roughly flat compared to 2021.
The war in Ukraine has sharply reduced natural gas supplies in Europe and boosted BASF’s energy bill on the continent by $2.9 billion in 2022. In Germany, overall chemical industry production decreased by 12% last year.
“The past year has taught us all a harsh lesson: peace and economic stability must never be taken for granted,” BASF chairman Martin Brudermüller said in remarks to stock analysts.
Along with its earnings announcement, BASF detailed a round of cost cutting, outlined last October, aimed at saving more than $500 million annually. As part of the program, BASF says it will shed about 2,600 positions, 2.3% of its global total. The program, which BASF will execute this year and next, will focus on nonmanufacturing operations such as services, administration, and R&D.
In addition, BASF is rolling out measures, focused on Ludwigshafen, meant to save another $200 million annually or more.
The company is closing one of two plants in Ludwigshafen that make ammonia, the largest consumer of natural gas as a raw material at the site. It is also shutting downstream nitrogen fertilizer facilities.
BASF is closing a plant making caprolactam, the key raw material for nylon 6. The caprolactam business had seen a buildup of capacity in recent years, especially in China, and the sharp rise in European energy prices put additional pressure on the business, BASF says.
Similarly, the company is reducing capacity for the nylon 6,6 raw material adipic acid and is shutting plants that make the adipic acid precursors cyclohexanol and cyclohexanone. And it is shutting capacity for soda ash, which relies on by-products from the adipic acid chain.
BASF is also closing plants that make toluene diisocyanate and its precursors dinitrotoluene and toluene diamine. Demand for the polyurethane raw material has been weak in Europe, the company says.
In all, BASF estimates that closures in Ludwigshafen will affect some 700 workers and reduce the replacement value of the complex’s assets by 10%. The closures will also reduce BASF’s global carbon dioxide emissions by 4%, the firm says.