BASF says earnings dropped by half in second quarter

The German chemical giant BASF has warned investors it expects second-quarter earnings to plummet 47%, to €1 billion (about $1.1 billion), compared to the same time last year. The company says major international chemical markets, including agriculture and auto manufacturing, are experiencing steeper-than-expected downturns.

The profit warning comes less than two weeks after BASF announced a reorganization that will cut 6,000 workers by 2021. That plan aims to shrink administrative overhead and grow service-based businesses. The cost-cutting moves won’t come in time to keep BASF’s profits level this year. It says full-year 2019 earnings before interest, taxes, and special items will be 30% lower than it reported in 2018.

Sales of high-margin chemicals are flagging in the face of weak growth in industrial production, BASF said in its warning. In particular, the firm pointed to Chinese auto production, which is down 13% in the first half of the year.

In the US, major planting delays due to cold spring weather and record flooding sank BASF’s sales of agricultural chemicals and seeds. The ongoing trade dispute between the US and China is adding to farmers’ reluctance to spend on crop inputs this year.

Low prices for isocyanates and other basic chemicals plus planned shutdowns at BASF’s steam crackers round out the firm’s list of 2019 challenges.

The dire market update caused BASF’s stock price to erode 6.8% in the next day’s trading. It also contributed to lower stock prices at the German chemical firms Bayer, Covestro, and Wacker Chemie.

Other German firms haven’t made similar warnings. In fact, a day after BASF issued its warning, Lanxess assured investors that it expects 2019 earnings to be level with 2018.

Still, the German chemical trade group VCI says slower economic growth and trade disputes caused German production of chemicals and pharmaceuticals to fall 6.5% in the first half of 2019. Overall the industry is concerned the global economic recovery will end abruptly, VCI says.

The risks of additional tariffs and rising conflict in the Middle East also weigh on prospects for German exports. “Global trade would further slow—with strong impacts on German industry. The risk of a hard Brexit persists too,” says VCI president Hans Van Bylen.

Outside of Germany, LyondellBasell Industries and Westlake Chemical told investors that second-quarter earnings are up over the first quarter. Meanwhile, Corteva, DowDuPont’s new agriculture spin off, shrugged off the bad weather to announce a $1 billion share buyback program.

But trouble may be brewing in the US. Economists at the American Chemistry Council, a trade group, say data from May show soft demand for specialty chemicals from manufacturing industries. ACC’s economic indicator, called the Chemical Activity Barometer, was flat in June.