BASF ties prices to feedstock costs

By David Reed, UT EditorWyandotte, Michigan-BASF Corp. has announced that it will implement a surcharge, effective 1 May, 2004, on all of its MDI (methylene diphenyl diisocyanate) and polyol products in North America, "to help absorb unprecedented cost increases in energy and feedstocks," according to a 26 April statement.The charge will be levied on a monthly basis in relation to the price of the two main feedstocks for the products: benzene and propylene, respectively. For MDI, the surcharge will be $0.005 per pound for every $0.10 per gallon increase in benzene over the base price of $1.50 per gallon, using the prior month's CMAI NAFTA benzene contract settlement, BASF stated. The monthly polyol surcharge will be $0.005 per pound for every $0.01 per pound increase in propylene over the base price of $0.20 per pound, based on the prior month's CMAI NAFTA propylene contract settlement."The price of crude oil and its derivatives benzene and propylene … has reached historically high levels," said Lawrence Berkowski, director of BASF's Urethane Chemicals business in North America. "BASF can no longer absorb the increases in the hope that costs will fall back to the levels of the 1990s."In addition, said Berkowski, growing demand spurred by a strengthening global economy has strained BASF's production capacity of MDIs and polyols, "at a time when poor profitability has curtailed the investments needed for increased production."According to Berkowski, the base price of $1.50 per gallon for benzene and $0.20 per pound for propylene are higher than the historical averages of $1.00 per gallon and $0.16 per pound, respectively. As a result, BASF is still absorbing a large part of the increase. "The surcharges represent less than 50 percent of the cost impact to BASF since we are not passing on natural gas, nitric acid, chlorine and other costs, all of which have also risen dramatically," said Berkowski.MDIs and polyols have applications in the home furnishings, construction and automotive industries, among others, BASF's statement concluded."