Even "The Chemical Company", BASF finds the going tough - what of the rest?

BASF announced that it will temporarily close 80 plants world-wide and cut production at a 100 more in a move which will affect over 20,000 workers over the next two months.  In effect, BASF will reduce output by 25%.

Three weeks ago, BASF said it was coping with declining demand and that 2008 sales would top last year's EUR 97.5 bn with operating earnings matching 2007 (EUR 7.32 bn).  All has changed.  BASF has now issued a profits warning for this year. 

In the view of the FT and industry experts, the move by BASF is a pre-cursor to a huge bout of restructuring among Europen companies, including job cuts and factory closures.  

Where does this leave the paper chemicals industry?  

For the stong companies:

• BASF is in the process of acquiring Ciba on the wave of their gloomy announcements.  So, tough times for Ciba under their new masters.  
• Kemira - has recently announced significant lay-offs and a restructuring programme.
• Ashland and Hercules are well placed to take advantage of the current climate, further  investing in Europe would be folly, but they could help in the market consolidation.  However, a recent Forbes.com article puts Ashland in a different light - Trashland!
• Dow Chemical - announced last week that a fall in demand would force them into a restructuring before year end.

Then there are the question marks:

• Nalco - quiet at the moment but in need of a freshening up.  Their cost-cutting waves have left them rather thin on the ground.  Rumours abound.
• Clariant was struggling before the economic crisis - time to make some significant strategic and tactical moves? Don't hold your breath, but desperate times require desperate measures.  The share price is moving close to being considered a 'penny stock'.  Their leading global paper group (technical and manufacturing) in the UK is on schedule to shut before year end in what appears to be an attempt to protect their high-cost Swiss base.  A good move when the Swiss franc gains against sterling?!
• Eka Chemicals - solid in their protective Akzo Nobel net but again, the economic crisis may force some moves affecting paper chemicals which is not core business for the mighty Akzo.  The inability to sell National Starch has been a recent issue.
• Buckman - recently there has been news that this smaller company has struggled, but it is not beyond them to find an innovative way forward.  They are more agile than the larger companies.

As we have stated many times in this weblog, the Chinese paper chemical companies are well positioned to take advantage of the Chinese growth market and further squeeze the sluggish European and North American manufacturers, cutting down their options to show any future growth.

Difficult times, for sure, but there are opportunities for the sharp strategic thinkers.