BASF order books filling but has no clear view beyond December

LONDON (ICIS)–A shift in customer order trends towards more short-term purchasing due to coronavirus pandemic uncertainty has sharply reduced visibility on future demand, BASF CEO Martin Brudermuller said on Wednesday.

An increase in business momentum seen in October looks set to continue through much of the rest of 2020, added company CFO Hans-Ulrich Engel.

“December is looking fine at this time,” he said on Wednesday, commenting on BASF’s order books for the coming months.

Beyond that, however, the company stressed that it has very little forward visibility.

BASF’s coronavirus hit sales volumes were 2% lower in the third quarter compared with Q3 2019. Volumes were lower year on year in July and August but 4% higher in September.

They would have turned positive that month in the US if it were not for the steam cracker outage at Port Arthur in Texas. The company experienced double digit third quarter volume growth in China driven by what CEO Martin Brudermuller described as the country’s ‘V’ shaped economic recovery.

BASF has seen its order books fill following the lockdown driven slump in April and the gap, with order levels last year, close.

Now, order entries are slightly below the same month of the previous year, Brudemuller said, but he acknowledged that renewed coronavirus lockdowns might impact orders in the coming months. He was speaking on a media conference call following the release of the company’s third quarter financial results.

The gap between daily order entry, year on year, in April was -27%, but that had shrunk to 4% in September and to 3% in the month to 23 October.

Some 50% to 55% of BASF’s order entries now are for October and 25% to 30% for November. There is “no clear view beyond that,” Brudermuller said.

BASF will be banking on further coronavirus restrictions in Europe and elsewhere having a lesser impact on manufacturing than on hard hit service sectors.

It has been hit severely, however, by the collapse in the aviation sector and the deep slump in the automobile industry. It is suffering from the overcapacity driven pressure on petrochemical margins.

The company stressed on Wednesday that it would take “Early and decisive management actions to ensure continuity of operations worldwide,” in the midst of the pandemic.

“The customer is at the centre of all our activities; we closely interact, even more so during the pandemic. We adapt our utilisation rates according to market demand using our proprietary Verbund simulator,” BASF said in its financial materials.

BASF is planning based on an assumed 5% drop in global GDP this year, a 5.0% slump in industrial production and 2.5% fall in chemical production.

Against that backdrop, it expects to make a return on capital employed (ROCE) in 2020 in the 0.0% to 1.0% range on sales close to €58bn.