Business and Competitive Environment
BASF’s global presence means that it operates in the context of local, regional and global developments and a wide range of conditions. These include:
- Global economic and political environment
- Legal and political requirements
- International trade agreements
- Industry standards
- Environmental agreements (such as the E.U. Emissions Trading System)
- Social aspects (such as the U.N. Universal Declaration of Human Rights)
BASF holds one of the top three market positions in around 80% of the business areas in which it is active. Our most important global competitors include Arkema, Bayer, Clariant, Corteva, Covestro, Dow, Dupont, DSM, Evonik, Huntsman, Lanxess, SABIC, Sinopec, Solvay, Sumitomo Chemical, Syngenta, Wanhua and many hundreds of local and regional competitors. We expect competitors from Asia and the Middle East in particular to continue to grow in significance in the years ahead.
Challenging market conditions in Europe
On February 24, 2022, Russia launched a war against Ukraine. BASF strongly condemns the Russian attack on Ukraine. As a consequence, the company announced on April 27, 2022, that it would wind down its existing business activities in Russia in accordance with international law. Exempt from this decision is business to support food production, as the war risks triggering a global food crisis. The decision to withdraw from Russia led to special charges in EBIT of €72 million, including impairments on property, plant and equipment of €14 million. In 2021, Russia and Belarus accounted for around 1% of the BASF Group’s total sales.
The war in Ukraine has significantly changed the economic environment in Europe. Above all, reduced gas supplies from Russia led to much higher and volatile commodity and energy prices and exceptionally high uncertainty, especially surrounding the gas supply. As a result, the European gas price peaked at a monthly average of €235.94 per MWh ($69.84 per mmBtu) in August 2022. In December 2022, it was significantly lower, averaging €118.25 per MWh ($36.74 per mmBtu), but still more than five times the U.S. gas price (Henry Hub). European gas prices averaged €124.16 per Mwh ($38.01 per mmBtu) for the year, more than double the prior-year level and more than ten times the 2020 level. The consequences of the gas price increase are manifold: In addition to strong cost pressure, it is driving inflation, weakening the economy and slowing demand from our customer industries. This development made production adjustments necessary in Europe’s energy-intensive industries. BASF took a variety of measures here. For example, ammonia production was temporarily scaled back and partly offset by higher plant utilization at non-European sites and through procurement. BASF also reduced its consumption of natural gas in European production by switching to alternative fuels wherever technically possible and economically viable. Even though European gas prices were already higher than U.S. prices before the outbreak of the war in Ukraine, they are expected to decline again with the targeted substitution and diversification of gas procurement sources and the shift to other energy sources, but to remain well above pre-crisis levels.
Another factor leading to generally challenging conditions for the European chemical industry include planned regulations under the European Green Deal. These will have far-reaching consequences for the regulation of chemicals in Europe. All of these headwinds are weakening the competitiveness of European chemical production.
Against this background and given the significant decline in earnings in our European market, we have announced a cost-cutting program focusing on Europe and above all Germany. Concrete measures are currently being developed. The program will be implemented in 2023 and 2024 and is expected to generate annual savings of €500 million in non-production areas upon completion. In parallel, we are developing further measures to structurally adjust BASF’s Production Verbund in Europe.