BASF Profit Warning Pulls Down Chemicals Sector

By Ruth Bender

BERLIN--Shares in BASF SE (BAS.XE) tumbled Monday after the German chemicals giant warned of considerably lower profits for the year as record low water levels of the Rhine river and the U.S.-China trade war weigh on the business.

Shares fell nearly 5% in mid-morning, dragging down rival chemical producers as analysts said the warning doesn't bode well for the entire sector.

BASF said late Friday that it now expects earnings before interest and taxes before special items to fall between 15% and 20% this year, compared to its previous guidance for a "slight decline."

The warning is the latest example for how the Rhine's low water levels have taken a toll on companies that rely heavily on one of Europe's most important waterways.

BASF, based in the city of Ludwigshafen, said the low water levels would cut 200 million euros ($227.5 million) from profits in the fourth quarter, more than analysts had expected. In the third quarter, the Rhine's lows hit profits by EUR50 million.

Over the past week, the Rhine has been clawing its way back from record lows that forced companies to reorganize transport at higher costs and prompted shortfalls in production that are now eating into profits.

Polymer-manufacturer Covestro AG (1COV.XE) in November also cut its 2018 outlook due to the low water while steel conglomerate Thyssenkrupp AG (TKA.XE) in October declared force majeure as it struggled to deliver enough raw materials to its Duisburg plant, a measure the company warned would impact earnings into the first half of next year. BASF is currently mulling measures to better weather low water levels in the future, including the purchase of a fleet of flat-bottom ships.

But BASF also warned of deeper troubles affecting the chemicals sector.

The company said the trade conflict between the U.S. and China had prompted a drop in demand from Chinese customers, weighing on its automotive segment. Lower-than-expected prices for isocyanate, a component used in foams and lower steam-cracker margins will also weigh on profits in the fourth quarter, BASF said.

Germany's Covestro fell 2% in early trade, Switzerland's Sika AG (SIKA.EB)--which makes specialty products for the auto and construction sectors--traded 5% lower and France's Arkema (AKE.FR) was down 3%.

Nathan Allen contributed to this article.

Write to Ruth Bender at [e-mail]; @RuthBenderWSJ.

(END) Dow Jones Newswires

December 10, 2018 06:38 ET (11:38 GMT)

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