Petrochemicals Continue to Boost BASF Earnings

Reuters, October 24, 2017

German chemicals group BASF continued to benefit from strong prices of basic petrochemicals as capacity expansion projects in the sector lag behind global demand growth, posting higher-than-expected quarterly operating profit on Tuesday. BASF’s third-quarter earnings before interest and tax (EBIT), adjusted for one-off items, rose 16 percent to 1.8 billion euros ($2.1 billion), slightly ahead of the 1.76 billion expected on average by analysts polled by Reuters. The group said it still expected sales, EBIT before special items and EBIT to increase considerably in 2017. EBIT after cost of capital would also increase considerably, where it at had previously anticipated a slight increase.

Industry-wide investments in new output capacity for basic chemicals - the building blocks for more advanced products such as insulation foams or engineering plastics - have not kept up with solid growth in demand so far this year. Prices were inflated further by a series of unplanned shutdowns and technical delays to investment projects across the sector and by disruptions caused by Hurricane Harvey on the U.S. Gulf coast.

On the flipside, higher feedstock costs dragged earnings lower at BASF’s specialty chemicals operations. At 1.1 billion euros, operating earnings at BASF’s basic chemicals division blew past consensus estimates of 861 million on average, offsetting weaker than expected profits at the units that make more advanced products such as crop chemicals and vitamins. ($1 = 0.8504 euros)

(Reporting by Ludwig Burger; Editing by Christoph Steitz and David Holmes)

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