Ludwigshafen, Germany - BASF SE's plastics sales rose strongly by nearly 8 percent in the third quarter of 2011 to Euro 2801 million or $3900 million (Q3 2010 Euro 2598 million) driven by significant price increases and further volume growth.
But earnings in plastics (EBIT before special items) for the chemicals giant were lower, at Euro 317 million (Q3 2010 Euro 371 million), mainly due to a weaker TDI (toluene diisocyanate) business, the chemical company said.
In its polyurethanes division, BASF said earnings were reduced by the decline in the TDI business so that earnings were below the very good level of the third quarter of 2010.
Polyurethanes sales, however, were slightly higher, with automotive industry demand staying high, while demand in construction weakened.
In TDI, volumes and prices declined as a result of improved product availability after the start-up of new capacities in Asia and Europe by competitors.
Discussing the TDI situation in a conference call with analysts, Hans-Ulrich Engel, BASF's chief financial officer, said the reduction in TDI margins in 2011 was not a surprise. "We knew that additional capacity would come on stream both in Europe and in Asia. And you have seen this kind of fluctuation and cyclicality in the past as well."
He noted that "Overall, the TDI supply chain over has been very, very attractive for us and we see good underlying growth of those products."
Adding that margins are driven more by supply than by demand in TDI, Engel said BASF knew what to expect when it announced that it was contemplating building a 300 kilotonnes per annum TDI plant in Western Europe. "You have to play the cycle here …. We think that when this plant comes on stream and we are talking here end of 2013, early 2015, by then, the market will be in pretty good shape, and we'll be able to absorb those capacities."
Engel also stressed that this 300 ktpa is not necessarily the net capacity increase, because BASF expects that some capacity will be taken out of the market. For example, he indicated, BASF will think hard about the future of its own small TDI plant in Europe [the group has a 70 ktpa in Schwarzheide, Germany].
(Conference call transcript courtesy of www.seekingalpha.com)