Outlook
Some of the opportunities relating to higher margins presented in the BASF Report 2021 could be realized and led to a considerable improvement in earnings in the first quarter of 2022 compared with the prior-year quarter, especially in the Chemicals, Industrial Solutions and Materials segments. These opportunities were partially offset by the risks that materialized, mainly as a result of the war in Ukraine and the pandemic-related lockdowns in China. These risks were mainly reflected in significantly higher raw materials and energy prices and freight costs. The resulting increase in costs was able to be offset by raising prices. In addition, supply chains were disrupted. This curbed demand, especially from the automotive industry.
The global macroeconomic outlook is currently subject to very high uncertainty. In particular, it is impossible to predict the further development of the war in Ukraine and its impact on the prices and availability of energy and raw materials.
Consequently, we are upholding our outlook for the 2022 business year:
- Growth in gross domestic product: 3.8%
- Growth in industrial production: 3.8%
- Growth in chemical production: 3.5%
- Average euro/dollar exchange rate of $1.15 per euro
- Average annual oil price (Brent crude) of $75 per barrel
We are maintaining the sales and earnings forecast for the BASF Group made in the BASF Report 2021:
- Sales of between €74 billion and €77 billion
- EBIT before special items of between €6.6 billion and €7.2 billion
- Return on capital employed (ROCE) of between 11.4% and 12.6%
- CO2 emissions of between 19.6 million metric tons and 20.6 million metric tons
The market environment continues to be dominated by an exceptionally high level of uncertainty. Risks may arise from further increases in raw materials prices and new sanctions against Russia, such as a natural gas embargo, or restricted gas supplies from Russia as a result of counter-sanctions. Further risks could arise from the future course of the coronavirus pandemic and longer-lasting or new measures to contain the number of infections, especially in China. Opportunities could arise from continued high margins.
For the remaining opportunity and risk factors, the statements made in the BASF Report 2021 continue to apply overall. According to the company’s assessment, neither existing individual risks nor the sum of individual risks pose a threat to the continued existence of the BASF Group.
There is currently great uncertainty surrounding the supply of natural gas from Russia to Europe. A continuous supply of natural gas according to demand is essential to chemical production. Around 60% of the natural gas consumed by BASF in Europe is used to generate the energy (steam and electricity) needed for production. Around 40% of natural gas is used as a raw material to produce important basic chemicals and a wide range of products in the downstream value chains supplying almost all sectors of industry. An interruption to or significant restriction of the supply of natural gas would have a significant impact on BASF’s European activities. The consequences would vary depending on the duration and extent of supply restrictions, the existence of alternative supply sources and possible substitutions, as well as any optimization of production to reduce the use of natural gas. It is therefore not possible to quantify the risks with sufficient accuracy. In addition, in such a scenario, strict cost reduction measures would be taken to partially offset the negative effects.