FRANKFURT (Dow Jones)--Germany's BASF SE (BAS.XE) Thursday confirmed a strong recovery in the chemical sector, reporting production bottlenecks as resurgent demand outstrips supply.
The world's largest chemicals company by revenue confirmed its outlook for 2010 as it reported a sharp increase in third-quarter net profit, saying it had felt "barely any sign of the usual seasonal slowdown".
BASF joined peers DuPont Co. (DD), Bayer AG (BAYN.XE), Akzo Nobel NV (AKZA.AE) and Royal Dutch Shell PLC (RDSB.LN) in reporting strong demand and high capacity utilization in the July to September period.
It said net profit soared to EUR1.2 billion from EUR237 million in the year-earlier period, far exceeding analysts' expectations of EUR879 million, and BASF said it expects good business development to continue in the fourth quarter.
Rising sales volumes meant BASF reported bottlenecks for some products in the Chemicals division, as it did in the second quarter. Chemicals reported the strongest divisional growth, with sales up 44%, as increased demand from the auto industry--particularly for luxury cars in China--bouyed the sector.
Chemicals manufacturers had been keeping production levels in check to avoid surplus levels that hurt margins, but industrial demand has now made a stronger-than-expected comeback--and both BASF and rival Bayer's MaterialScience unit said they were able to raise prices in the third quarter as demand rose.
The rebound in autos and chemicals is not just due to restocking, said analyst Jeremy Redenius of Bernstein Research.
"Looking at previous recessions, inventory rebuilding doesn't happen until people are confident the economy's back on track, and that hasn't happened in the U.S. and Europe yet. Customers still order in small quantities with short lead times," he said.
BASF expects earnings before interest and tax of more than EUR8 billion in 2010, which would surpass the record EUR7.6 billion achieved in 2007.
The company warned that risks to economic development remain high, but reiterated its plans to increase its dividend due to the high premium it expects to earn on its cost of capital. BASF paid a EUR1.70 dividend per share for 2009.
At 1130 GMT, BASF shares traded up 0.1% at EUR52.30. Since the start of the year, BASF shares have gained around 16% of their value, outperforming the European Chemicals stock index which has gained almost 12%.
5 comments:
I read the whole thing, I didn't understand half of it, but is sounds exciting! Congrats Jeremy!
Go Jeremy!
ps--Em, I'm glad to be back on the blog. :)
thanks for trekking through it all jessica. you're good with the tough texts!
julie, i'm glad to have you back sister!
OOOH Jeremy! Nice quote. It can be tricky! Once Reg was quoted as saying "usually it's never a problem" in the Ann Arbor paper. I still haven't let him live that one down.
hiya kerry! cute regism! i'm so thankful the stuff i say isn't put in print. man i hope our christmas schedules align this year. there are four hadiari i'm dying to see.
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