Basf To Cut 2600 Jobs After A Year Of High Energy Costs

BASF to Cut 2,600 Jobs After a Year of High Energy Costs

Basf To Cut 2600 Jobs After A Year Of High Energy Costs

The German chemical giant blamed a drop in profits on stubbornly high natural gas prices and shifting global demand.

The chemical giant BASF announced plans on Friday to cut 2,600 positions, mainly in Germany, as it reported a slide in earnings that it blamed on shifting global demand and a loss of the cheap Russian natural gas that has served as a backbone for the company for decades.

BASF also said it would abruptly cut short a 3 billion euro, or $3.2 billion, stock buyback program begun in January 2022. It had been scheduled to run until the end of this year, but will end because of “profound changes in the global economy.”

The grim announcement from one of Germany’s industrial leaders came one year to the day from Russia’s invasion of Ukraine, which set off an energy crisis in Europe as Moscow began dialing back its shipments of natural gas as punishment for the bloc’s support of sanctions. Gas prices reached record highs, forcing BASF and other companies reliant on energy to cut back production.

BASF needs natural gas to power its facilities and as a raw material to produce chemical products, including ammonia, which is used in making fertilizer.

As part of a restructuring announced Friday, BASF will close one of its two ammonia plants and corresponding fertilizer facilities at the company’s massive manufacturing complex in Ludwigshafen, in southwestern Germany. Combined with the job cuts, which amount to about 2 percent of the company’s work force, the goal is to reduce its annual costs by €200 million annually within the next three years.

Martin Brudermüller, the chief executive, blamed overregulation and bureaucratic permitting processes in Europe — including those linked to Europe’s plans for climate neutrality — for the decision to scale back production in Germany, at a time when the company is choosing instead to invest overseas. “All this has already hampered market growth in Europe in comparison with other regions,” Mr. Brudermüller said.

“High energy prices are now putting an additional burden on profitability and competitiveness in Europe,” said Martin Brudermüller, chief executive BASF.Ronald Wittek/EPA, via Shutterstock

But he also stressed that high energy prices, which the company does not expect to return to the levels seen before the invasion, were a driving factor. Although natural gas prices have eased considerably since last summer’s peaks, they remain above long-term averages.

BASF saw its gas bill surge by €2.2 billion last year, compared with 2021, even as it found ways to slash consumption by 35 percent — a display of flexibility that company leaders conceded on Friday they should have been preparing years ago.

“High energy prices are now putting an additional burden on profitability and competitiveness in Europe,” Mr. Brudermüller said.

Last month, the company announced a €7.3 billion euro write-down for 2022, after the Russian government seized gas and oil wells belonging to Wintershall Dea, an energy company in which BASF has a controlling stake, after the company pulled out of Russia.

The company reported that its earnings before interest and taxes in 2022 were €6.9 billion, a drop of 11.5 percent from the year before. It forecast the current year’s earnings would fall again, to between €4.8 billion and €5.4 billion.

. Earlier this month, Ford Motor announced it would reduce about 11 percent of its work force in Europe, including 2,300 workers in Germany, over the next three years, as part of efforts to adapt to electric vehicles.

BASF said that even as it needs to cut jobs, it is also trying to fill about 1,000 open position amid a dire shortage of skilled workers. To do that, it hopes to retrain some of the hundreds of workers whose jobs will be cut in Ludwigshafen. Mr. Brudermüller conceded that his company should have been more aggressive in shifting to greener energy sources, as well as more digital processes in production.

BASF’s industrial facilities in Ludwigshafen in July. Mr. Brudermüller pushed back on recent reports in the German media that the company was shifting its focus to China.Boris Roessler via, Associated Press

“In other years we were a little naïve when we looked into the future, we didn’t undertake all of the reforms we should have. We waited too long,” said Mr. Brudermüller, who has led the company since 2018. “On the subject of digitalization, we are still in the stone age here in Germany.”

Nevertheless, he insisted that BASF remained committed to its Ludwigshafen site, where the company was founded 158 years ago, and pushed back on recent reports in the German media that the company was shifting its focus to China, where it is investing €10 billion until 2030 in a site in Zhanjiang, in Guangdong province. That site, which began initial production in September and will be opened in phases, has raised concerns in Germany that it could ultimately replace Ludwigshafen.

“We are not relocating to China, not at all,” Mr. Brudermüller told reporters on Friday, pointing out that facilities were built recently in China because of demand for the company’s products there, which exceeds that in Europe. “We have to react here because we are losing ground here,” he said.

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