Thousands of jobs worldwide were under threat yesterday after BASF, Europe's largest chemical producer, put out a profits warning and said it would close 10 manufacturing sites around the world.
The company will also shut a further 14 plants at other sites. The most immediate impact on the UK came with the news that its factory at Birkenhead, Merseyside, which had recently been damaged by fire, would shut, with the loss of 178 jobs. It was not clear how many of the 2,300 BASF workers in this country would be affected overall.
BASF said it had been hit by the unexpected deterioration in European economic growth, a failure of activity in the US to pick up and continued high raw material prices, especially oil. The chemicals sector had come to be seen as a relatively safe haven, in the wake of volatility in technology stocks. The BASF warning, which saw its shares fall more than 5 per cent, hit other European chemicals stocks yesterday, as this theory was undermined. ICI dropped more than 4 per cent to 422p.
As recently as the end of April BASF had said: "We anticipate a significant increase in income from operations before special items in the second quarter." Analysts said the company had based that prediction on unrealistic assumptions and a downgrade had been expected. Nevertheless, the magnitude of the earnings alert yesterday took markets by surprise. The company has now said there would be no increase on the 870m euros (£526m) earned in the second quarter last year.
Tony Cox, an analyst at Dresdner Kleinwort Wasserstein, said he had been forecasting 1bn euros profits for the second quarter this year. "Chemicals companies are reliably unreliable," he said. "Everyone knew that earnings expectations would fall. But the scale of what is implied in the BASF statement is surprising. It will have reverberations for the rest of the year."
Along with the plant closures, the BASF current capital expenditure programme will be reduced by 20 per cent and, in the medium term, investment will be cut to just the level of depreciation.
"With these measures, we are adapting our business to the substantially slower economic growth worldwide," said Jurgen Strube, BASF's chairman.
The company said that many customers had been holding off purchasing in anticipation of lower future prices of BASF products, many of which are oil-based. Earlier this week, Werner Muller, Germany's economics minister, said Europe's largest economy would see "zero per cent growth" in the second quarter of the year and two leading research institutes cut their 2001 growth forecasts for Germany this year to 1.3 per cent.
Mr Strube said BASF stuck by its aim to increase income by an average of 10 per cent each year from 2000 to 2002.Reuse content