March 11, 2005

BASF fine chemicals see profits reduced by vitamin prices
 

BASF, the world's number two vitamin maker, reported strong earnings on Wednesday despite seeing their profits reduced at the fine chemicals unit.

Thanks to a sharp growth in industrial output in 2004 - especially in US and Asia - which resulted in a lift in demand, the company registered a steep increase in operating profit, rising 83 percent to €4.86 billion.

However, continuing high energy and raw material costs are seen to affect the strategy of prioritising value over volume, which would be difficult to implement in the fine chemicals unit.

According to BASF board chairman Jurgen Hambrecht, attention could no longer be put on volume if the prices of raw material were to increase by 65 percent in one month.

The fine chemicals business has seen profit margins reduced from 6.8 percent in the previous year to 2.7 percent.

Much of the damage came from lower vitamin prices that ate into a volume growth of 6 percent.

Hambrecht also pointed out that choosing value over volume has its risks.

With an overcapacity situation for lysine and vitamin C seen in the international arena, prices are not only influenced by demand and supply, but are also dependent on the prices of alternative lysine sources and soy, he said.

BASF is set to reduce fixed cost in a bid to adjust with the falling prices and enhance efficiency. Thus, the firm would be retrenching 3,600 jobs at Ludwigshafen, the main vitamin production site, over the next 3 years.