Market and product

German-based chemical company BASF's adjusted operating profit dropped 16% in the second quarter, hurt by a slump in oil and gas unit and by weak demand for its agricultural pesticides.

The world's largest chemical company by sales reported earnings before interest and tax (Ebit) adjusted for one-off items, of €1.7bn (£1.4bn).

The group repeated its forecast for a sharp decline in 2016 sales - due to the sale of its gas trading business and as it adjusts prices to lower energy and raw material costs - and for adjusted (Ebit) to be slightly below the year-earlier level.

BASF’s quarterly sales dropped 24% to €14.5bn (£12.2bn).

“We experienced robust demand, especially from the automotive and construction industries. However, the macroeconomic situation remains difficult to predict,” said Kurt Bock, chairman of the board of executive directors of BASF.

Two-thirds of this decline were the result of portfolio effects. These were mainly due to the divestiture of the gas trading and storage business as part of the asset swap with Gazprom at the end of September 2015. In addition, lower raw material prices, especially in the chemicals segment, led to a 7% drop in sales prices.

In the chemicals business, which comprises the chemicals, performance products and functional materials and solutions segments, volumes rose 4%. There were negative currency effects of 3% in all divisions.

For 2016, the company anticipated a “continuation of the currently challenging market conditions along with substantial risks”.

“We confirm our 2016 forecast for BASF group sales and Ebit before special items: We aim to increase sales volumes. BASF group sales will decline considerably, however, primarily as a result of the divestiture of the gas trading and storage business as well as lower oil and gas prices. We continue to expect Ebit before special items to be slightly below 2015 levels,” said Bock.

“Our outlook for 2016 remains ambitious in the current volatile and challenging environment, and is particularly dependent on further oil price development. With this in mind, we remain focused on cost-containment and restructuring measures, which have proven effective in the first half of 2016. Our recent portfolio measures will contribute to the mid and long-term success of our company,” Bock added.