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German Chemical Giant BASF to Close Factories Without Cheap Russian Gas

The world’s largest chemical company is closing a number of its factories, as the era of cheap Russian gas grinds to a halt amid a deterioration in the global economy.

BASF SE will cut 2,600 positions, about 2 percent of its global workforce, to save on operational costs, as the European Union’s biggest chemical firm is forced to deal without affordable Russian energy imports.

The Russian invasion of Ukraine caused natural gas prices to soar in Europe last year.

Currently, BASF proposes to use 65 percent Layoffs Germany will have a lot of administrative and research jobs.

According to Berlin government data the German chemical and pharmaceutical industries employ approximately 466,500 people and have a turnover exceeding $211 billion each year.

German-made products are an important part of the supply chain for automotive and other goods.

BASF Shuts Down Factories Due To Prohibited Energy Prices

The chemical giant announced on February 24 that it would close several factories in Germany including two ammonia plants. It will also close related fertilizer facilities. This will cause 700 job cuts at Ludwigshafen’s main facility.

“We are doing this because we believe in the future of the Ludwigshafen site, which is now in its 158th year,” said BASF CEO Martin Brudermüller in a statement, adding that the company remains committed to the site.

“We believe in the people who work here, and we believe in the region,” He said.

BASF will also terminate a share buyback program ahead of time, due to a decline in earnings, rising costs, and borrowing rates in Europe, along with economic uncertainty caused by the war in Ukraine.

Additionally, the firm laid out plans for cutting $211 million annually in costs.

BASF announced a loss of $7.7 billion for 2022 in relation to the Wintershall Dea energy project, following its decision to withdraw from Russia.

The company lost $1.46 billion in the year according to preliminary estimates. However, it was able to reduce the loss to $663 million today.

German Industry Struggles to Cope with Russian Gas

However, Brudermüller put much of the financial blame in Europe on overregulation, slow and bureaucratic permitting processes, and high costs for most production inputs.

“Europe’s competitiveness is increasingly suffering,” Brudermueller said. “High energy prices are now putting an additional burden on profitability and competitiveness in Europe.”

BASF’s energy bill jumped by $2.3 billion in the last year, despite a drop of 35 percent in consumption.

Last October, the German chemical company said it would cut its annual European costs by $530 million. This is because it doesn’t expect gas prices to recover to their pre-2022 levels.

Although gas prices have fallen from their peak last year, they are still well above what Germany’s industry can sustain. This is because manufacturing costs are higher in Germany than in the United States or East Asia.

Germany survived a mild winter and has gas storage tanks that are nearly full, but it is still vulnerable to energy rationing.

Europe’s largest economy switched to liquefied gas from Russian pipeline gas. But it also happens to be nearly four times as costly.

The eurozone’s energy prices have fallen to $53 per megawatt-hour from their peak of $360 per megawatt-hour last August, but they remain higher than historical averages.

European Manufacturers Seek Other Places to Invest

Like elsewhere in Europe, the rise of gas prices has made thousands of German jobs unaffordable and forced many companies to shift investment elsewhere.

According to a survey conducted by VCI Chemical Association in Germany, almost half of chemical companies said they would reduce their domestic investments due to rising energy costs.

BASF projects 2023 adjusted earnings before interest, taxes and taxes at $5.71 billion. This is in contrast to last year’s 12.5% decline to $7.3 million.

As the global economy continues to recover, the company expects market conditions in the second half the year to improve, especially in China.

BASF is one of several German companies that is expanding in China while Europe struggles to grow.

To meet China’s growing demand, the German chemical company is currently building a $10.58 billion new plastics engineering facility in China.

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