BASF to Push Ahead with Plastics Development

BASF is pushing forward the strategic development of its plastics business. This was the message from Dr. John Feldmann, member of the Board of Executive Directors of BASF Aktiengesellschaft, in a speech given at BASF’s Plastics Press Conference today, June 23, 2004, in Ludwigshafen. The Press Conference was held in advance of the world’s largest plastics trade fair, the K 2004, which will start in Düsseldorf on October 20, 2004.

“We have advanced successfully on our path to the future. We have clearly defined our business models of the future and realigned our operations accordingly. By the end of the year, we expect to achieve a reduction in fixed costs in this important BASF segment of up to €500 million worldwide compared with 2001. At the same time we have invested in new plants and have successfully improved our global structures. We will continue along this difficult yet promising path to improve our position as the world leading producer of plastics,” said Feldmann.

In doing so, BASF is pursuing three fundamental strategic lines:

  • Cooperation with customers in the development phase of new products is an important part of BASF’s objective of making a decisive contribution to its customers’ success.
  • Standard products will be produced and marketed globally as part of a clear commodity-based business model.
  • Specialties will be produced close to their intended markets. Their main starting products will be sourced either from BASF’s main sites or from plants operated jointly with partners at central chemical sites.

In its Polyurethanes division, BASF has a well-balanced business model for polyurethane basic materials and specialties. BASF has improved its global production structures for polyurethane basicmaterials through targeted investments in new plants and plant expansions. At the same time, BASF extended its network of polyurethane system houses through two acquisitions in the United States and Sweden at the beginning of 2004, and now operates 27 such facilities. Feldmann summed up the advantages of this business model: “On the one hand, we can draw on the benefits of integration offered by our Production Verbund. On the other hand, our network of system houses and development centers enables us to respond flexibly to develop systems tailored to our customers’ applications and requirements.”

Focusing on market demands

The specific demands of the market also served as the starting point for new business models in the Styrenics division. The plastic ABS, which is used for example in toys and housings for consumer goods, has increasingly developed from a specialty into a standard product. A former portfolio of some 1,500 ABS products is therefore no longer necessary. “Our goal is to limit our worldwide product range to less than 10 products,” said Feldmann. These 10 products are to be manufactured cost-effectively at three highly efficient world-scale plants in Europe, Asia and North America.

The third operating division in the Plastics segment, Performance Polymers, has been significantly strengthened through the acquisition of Honeywell’s engineering plastics business. The parallel sale of BASF’s fibers business completed the withdrawal from this unattractive part of the market. At the end of 2003, BASF also acquired Ticona’s nylon 6,6 business, thus further strengthening its position in engineering plastics. According to Feldmann, these two acquisitions will play an important role in realizing new developments together with customers.

Earnings improve significantly in the first quarter of 2004

In the first quarter of 2004, BASF succeeded in increasing sales volumes in its Plastics segment. Earnings improved significantly, in particular as a result of internal cost-reduction measures such as site restructuring.

Feldmann emphasized that BASF would continue to optimize its plastics activities. “Our goal is always to earn a premium on our cost of capital,” he said. “We will focus on those areas in which we can offer our customers clear advantages, and which allow us to grow profitably. On the other hand, whether it be due to their capacity, technology or location, we will close or divest those plants and businesses that are no longer competitive or attractive to customers.”

Feldmann’s prognosis for BASF’s plastics business was positive in view of the restructuring measures that have been carried out to date. An additional positive aspect is that world plastics consumption is expected to average about 5 percent per year until 2015. To some extent, this is due to rising standards of living and a resulting global increase in demand for plastic products. This applies in particular to the Asian growth markets, where BASF has been successful for many years and has expanded solidly. Higher demand is also being fueled by the spread of existing applications worldwide as well as the constant discovery of new applications.

Plastics help save fuel

Automobile construction provides a good example of the enormous innovation potential of plastic and their applications. Plastics already account for 13 percent of the total weight of a medium sized car, and this figure is expected to rise to 18 percent by 2007. Not only do plastics make automobiles safer, more powerful and more comfortable, they also help save fuel. According to experts, the use of plastics in cars in Germany saves more than 400 million liters of fuel and reduces CO2 emissions by about 1.2 million metric tons.

The use of plastics for heat insulation in buildings also has a positive effect on the environment. Experts estimate that there are about 24 million housing units in Germany in need of renovation. If these properties were insulated so as to reduce heating oil usage from 25 to around 7 liters per square meter, CO2 emissions could be reduced by 84 million metric tons annually. That corresponds to about one-third of Germany’s goal of cutting annual CO2 emissions by 255 million metric tons in accordance with the Kyoto Protocol. “For many applications, plastics are the most eco-efficient materials available, both today and in the future,” said Feldmann.

For more information on polyurethanes, click here.

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