(March 26): BASF SE’s top executive said profits at its new €10 billion (US$11.6 billion) Chinese petrochemicals facility will be far lower than expected for the next couple of years.
Europe’s biggest chemical maker decided to go ahead with its biggest investment to date in 2018. Since then, oversupply and higher energy prices have been undermining the industry, with the Middle East conflict wreaking additional havoc in recent weeks.
Profit expectations “over the next year or two are significantly lower than we had anticipated at the time of approval,” Chief executive officer Markus Kamieth told reporters at the opening event on Thursday. “I expect to see an improvement in the operating environment for the chemical sector here over the next two, three, or four years.”
BASF is ramping up production at the vast Zhanjiang Verbund site in Guangdong province with the outlook for the sector increasingly bleak. The company previously lowered expectations for the site for an €100 million earnings hit in 2026. The US-Israeli war on Iran is meanwhile disrupting flows of crude and naphtha from the Middle East, key raw materials for Asia’s petrochemicals industry.
An employee at BASF Zhanjiang Verbund site in Zhanjiang on March 26.
The company “has a very good asset in a tough market,” said Berenberg analyst Sebastian Bray. Many shareholders would likely have wanted the cash used to buy back stock or in another way because “ultimately BASF is adding supply to what is probably an oversupplied market,” Bray added.
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After another challenging year in 2025, prospects for BASF and its European rivals have rarely been grimmer, likely triggering additional consolidation in the region’s €635 billion industry to help address challenges like soaring energy costs, uncertainty around trade tariffs and overcapacity.
Kamieth has moved to restructure the German company since taking over in April 2024 in a bid to boost profitability. In October, he ceded control of its €7.7 billion coatings business to Carlyle Inc having already disposed of its decorative paints unit.
Adding significant production in China will help benefit from an industry that remains healthy with underlying growth of over 5%, he said.
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Still, turning a profit in China for any firm at present is tough, said Iris Herrmann, a partner at consultancy Oliver Wyman.
“Given the current overcapacity, you need to be in it for the long haul, which is difficult for Western publicly traded companies,” Herrmann said.
Even as fallout from the conflict in the Middle East ripples through the sector, certain conditions could still play in BASF’s favour as the disruption exposes a widening divide across feedstock models.
Asian producers more reliant on Middle Eastern crude are under pressure, while those using domestic coal or ethane from the US or China are less exposed, according to Kelly Cui, research director, petrochemicals at Wood Mackenzie in Shanghai.
That split is reflected in market performance. Shares in coal-heavy Ningxia Baofeng Energy Group Co and US ethane-reliant Satellite Chemical Co have gained 25% and 14% respectively since the conflict began, while Rongsheng Petrochemical Co and Hengli Petrochemical Co, both dependent on Middle Eastern crude, have fallen by about 24% and 18% respectively.
“Companies are increasingly looking at multisourcing strategies — blending US LPG, African condensates and local gas where possible,” Cui said.
BASF — whose shares are up about 13% this year, giving it a market value of some €45 billion — looks relatively well-placed. Its Zhanjiang cracker is designed to run on a flexible mix of feedstocks, including naphtha and butane, giving it more options than older, purely naphtha-based assets in the region.
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While it does source some naphtha from the Middle East, it also has a butane supply agreement with Canada’s AltaGas.
“With the Zhanjiang facility being modern and more flexible, it may be better positioned to weather disruptions than older naphtha-reliant plants — notably in other Asian producers such as South Korea and Japan,” said BloombergNEF analyst Philip Geurts.
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