BASF SE announced concrete cost savings measures focused on Europe as well as measures to adapt the production structures at the Verbund site in Ludwigshafen (in picture/file photo). Globally, the measures are expected to reduce around 2,600 positions.
LUDWIGSHAFEN, GERMANY: Dr. Martin Brudermuller, Chairman, Board of Executive Directors, BASF SE at the company’s recent results presentation announced concrete cost savings measures focused on Europe as well as measures to adapt the production structures at the Verbund site in Ludwigshafen.
“Europe’s competitiveness is increasingly suffering from overregulation, slow and bureaucratic permitting processes, and in particular, high costs for most production input factors,” said Brudermuller. “All this has already hampered market growth in Europe in comparison with other regions. High energy prices are now putting an additional burden on profitability and competitiveness in Europe.”
Annual costs savings of more than €500 million by the end of 2024
The cost savings program, which will be implemented in 2023 and 2024, focuses on rightsizing BASF’s cost structures in Europe, and particularly in Germany, to reflect the changed framework conditions.
On completion, the program is expected to generate annual cost savings of more than €500 million in non-production areas, that is in service, operating and research & development (R&D) divisions as well as the corporate center. Roughly half of the cost savings are expected to be realized at the Ludwigshafen site.
The measures under the program include the consistent bundling of services in hubs, simplifying structures in divisional management, the rightsizing of business services as well as increasing the efficiency of R&D activities. Globally, the measures are expected to have a net effect on around 2,600 positions; this figure includes the creation of new positions, in particular in hubs.
Adaptations to the Verbund structures in Ludwigshafen are expected to lower fixed costs by over €200 million annually by the end of 2026
In addition to the cost savings program, BASF is also implementing structural measures to make the Ludwigshafen site better equipped for the intensifying competition in the long term.
During the past months, the company carried out a thorough analysis of its Verbund structures in Ludwigshafen. This showed how to ensure the continuity of profitable businesses while making necessary adaptations. An overview of the major changes at the Ludwigshafen site:
- Closure of the caprolactam plant, one of the two ammonia plants and associated fertilizer facilities: The capacity of BASF’s caprolactam plant in Antwerp, Belgium, is sufficient to serve captive and merchant market demand in Europe going forward.
High value-added products, such as standard and specialty amines and the Adblue® business, will be unaffected and will continue to be supplied via the second ammonia plant at the Ludwigshafen site.
- Reduction of the adipic acid production capacity and closure of the plants for cyclohexanol and cyclohexanone as well as soda ash: Adipic acid production at the joint venture with Domo in Chalampé, France, will remain unchanged and has sufficient capacity – in the changed market environment – to supply the business in Europe.
Cyclohexanol and cyclohexanone are precursors for adipic acid; the soda ash plant uses by-products of the adipic acid production. BASF will continue to operate the production plants for polyamide 6.6 in Ludwigshafen, which need adipic acid as a precursor.
- Closure of the TDI plant and the precursor plants for DNT and TDA: Demand for TDI has developed only very weakly especially in Europe, Middle East and Africa and has been significantly below expectations. The TDI complex in Ludwigshafen has been underutilized and has not met expectations in terms of economic performance.
This situation has further worsened with sharply increased energy and utility costs. BASF’s European customers will continue to be reliably supplied with TDI from BASF’s global production network with plants in Geismar, Louisiana; Yeosu, South Korea; and Shanghai, China.
In total, 10 percent of the asset replacement value at the site will be affected by the adaptation of Verbund structures – and likely around 700 positions in production. Brudermuller stressed:
“We are very confident that we will be able to offer most of the affected employees employment in other plants. It is very much in the company’s interest to retain their wide-ranging experience, especially since there are vacancies and many colleagues will retire in the next few years.”
The measures will be implemented stepwise by the end of 2026 and are expected to reduce fixed costs by more than €200 million per year.
The structural changes will also lead to a significant reduction in the power and natural gas demand at the Ludwigshafen site. Consequently, CO2 emissions in Ludwigshafen will be reduced by around 0.9 million metric tons per year. This corresponds to a reduction of around 4 percent in BASF’s global CO2 emissions.
“We want to develop Ludwigshafen into the leading low-emission chemical production site in Europe,” said Brudermuller. BASF aims to secure greater supplies of renewable energy for the Ludwigshafen site. The company plans to make use of heat pumps and cleaner ways of generating steam. In addition, new CO2-free technologies, such as water electrolysis to produce hydrogen are to be implemented.
Further, with the company’s priorities for the use of cash and in view of the profound changes in the global economy in the course of 2022, the Board of Executive Directors of BASF SE has decided to terminate the share buyback program ahead of schedule. The share buyback program was intended to reach a volume of up to €3 billion and be concluded by December 31, 2023, at the latest.
Post time: Mar-20-2023