Huge cost overruns make BASF decide to “stay away” from Europe
The skyrocketing gas prices in Europe have made it difficult for many industrial companies to maintain. Recently, BASF officially announced that it would scale down its production in Europe as soon as possible and permanently. The reason it gave was the gas crisis in Europe and overly strict EU industry regulations. BASF’s natural gas costs have increased significantly this year. Faced with a huge cost pressure of about RMB 15.8 billion, BASF finally could not afford it and chose to stay away from Europe.
Under the energy crisis, companies are struggling to support themselves.
The European chemical industry is now facing a huge impact. This is mainly due to the serious spike in energy costs in Europe. BASF is not the only one that has been badly affected. Many European companies have had to cut production in order to struggle in this situation. For example, in Alcoa’s aluminum smelter in Norway, production was cut by one-third of the original. Total Energy and the German plant Crestron have even announced a direct shutdown. It can be seen that European companies are now walking on thin ice. As a result, many companies have chosen to leave Europe to find another way out.
BASF’s announced gas expenditures also show the company’s difficulties and the pressure it is under. In order to alleviate the current situation, BASF announced that it will cut costs by one billion euros in the next two years. The next major business directions will be in the non-manufacturing areas of IT, communications, and R&D.
BASF will turn its attention to China after the energy shock.
BASF, as a German chemical giant, has always attached importance to the development of the German market. Now that the energy crisis in Europe is getting more and more serious, BASF is forced to adjust its strategic direction and objectives in time. The Chinese market has huge potential in all aspects. BASF is also looking at this point, so it adjusted the main battlefield of development to China. BASF also made a big move in September this year. It will invest 10 billion euros in China to build a world-class chemical base.
Not only that, but BASF also said that this investment will support the growing demand in China. This will be followed by the formation of an integrated value chain at the site. Currently, the Chinese market accounts for 14% of BASF’s total sales. Previously, BASF only accounted for 18% in the German market. It is clear that the Chinese market is gradually becoming a major part of BASF.
The impact of the energy crisis on the Chinese chemical industry.
The situation in the European market today has led to high energy prices and electricity prices. The huge increase in costs made the giant European companies leave. Numerous giant European companies have plunged into the Chinese market. This has had a huge impact on the chemical industry in China. But according to the current development of the Chinese market, the entry of these large companies is very welcome. Because this can solve many technical barriers to some extent and help the Chinese market in a more efficient, sustainable, and high-quality way. This can also fill the gap in the Chinese market for suppliers of chemical products.
But for Chinese localized companies, it is not good. The market space is limited and the increase in foreign companies will have an impact on Chinese state-owned enterprises. Not long ago, China’s National Development and Reform Commission issued a policy to improve the attraction of the manufacturing industry and promote the high-quality development of China’s manufacturing industry. And will also carry out green low-carbon upgrades, and the construction of green technology projects. It is a real test for local chemical plants to let foreign investors cooperate in R&D and application.
Conclusion:
It can be seen from the latest financial statements released by several Chinese petrochemical companies, which are affected by factors such as recurring epidemics and rising raw material prices. Profits are also showing losses of varying degrees. Revenues are all in decline. BASF’s timely stop-loss withdrawal from Europe to China’s development is also the most correct choice at the moment.