basf petrochemicals
TRANSCRIPT
PetrochemicalsHeart of the VerbundDr. Werner PrätoriusPresident Petrochemicals DivisionSeptember 2005
2
Disclaimer
This presentation contains forward-looking statements under the US Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates and projections of BASF management and currently available information. They are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict and are based upon assumptions as to future events that may not prove to be accurate.
Many factors could cause the actual results, performance or achievements of BASF to be materially different from those that may be expressed or implied by such statements. Such factors includethose discussed in BASF’s Form 20-F filed with the Securities and Exchange Commission. We do not assume any obligation to update the forward-looking statements contained in this presentation.
3
Key Facts
• BASF is the #1 Chemical Company worldwide
• The unique Verbund concept is key to our strategy
• Petrochemicals are the heart of the Verbund
• Its major role is to provide reliable and secure supply for the most important value chains of BASF
• Products used in all BASF divisions apart from Inorganics, Agricultural Products and Oil&Gas
4
BASF’s Balanced PortfolioPetrochemicals – a Division in the Chemicals Segment
*including other activities 2004: 1.6 billion EUR (4%)
2004 Group sales*: 37.5 billion EUR
Agriculture &Nutrition
PerformanceProducts
21%
Plastics 28%
Chemicals• Petrochemicals• Inorganics• Intermediates
Oil & Gas
14%
14%
11%
19%
5
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
2000 2001 2002 2003 20040
50
100
150
200
250
300
350
Salesin million EUR
Total Sales (internal and external) EBIT (index 2000 = 100)
EBIT indexed
Sales & EBIT Development
Average annual growthrate 2000-2004:
• GDP: 2.4%
• Chemical Prod.*: 2.3%
• BASF PetrochemicalsSales: 15.6%
• Drivers for EBIT improvement:- High capacity utilization- Higher margins
* Without Pharma
3,879 3,951
4,8865,372
6,935
6
CrackerProducts
Solvents
Alkylene Oxides& Glycols
2004 total sales: 6.9 bn EUR
15%
14%59%
Industrial Gases
3%
9%
Plasticizers
Sales Distribution PetrochemicalsInternal and External Sales by Business Unit
Market driven
• Major market player
• Proprietary technology
Supply Driven
• Focus on competitive supply to the Verbund
• External sales to optimize capacity utilization
• State-of-the-art technology
7
Petrochemicals – Heart of the Verbund
Coatings1%
FineChemicals
2%
Others1%
Poly-urethanes
10%Styrenics
35%
PerformancePolymers
1%
PerformanceChemicals
17%
Inter-mediates
18%
FunctionalPolymers
15%
2004Internal Sales
Petrochemicals:2.7 bn EUR
8
Petrochemicals and the BASF Verbund
Petrochemicals
Value Chains of the
BASF Verbunddeliver
~ 8000 Products
e.g.Plasticizers
Glycols
• EthyleneGlycol
• PropyleneGlycol
Solvents
• Oxo- & higher Alcohols
• Glycolethers
Cracker Products
• Ethylene
• Propylene
• Butadiene
• Benzene
• Toluene
• ...
Alkylene Oxides
• Ethylene Oxide
• Propylene Oxide
1 | Cracker Products
2 | Alkylene Oxides & Glycols
3 | Plasticizers & Solvents
4 | Key Statements
10
Naphtha-based Cracker Provides Full Slate of Cracker Products
• BASF’s broad demand portfolio for cracker products does not fully match Naphtha-based cracker output
0.04
0.25
0.17
0.55
1.0
Naphtha(3.0)
0.11
1.52
0.13
0.97
1.0
2004
BASFDemand
0.0
0.01
0.03
0.02
1.0
Ethane(1.3)
Typical Cracker Output
Benzene
Butadiene
Toluene
Propylene
Ethylene
Feedstock
t/t Ethylene
Source: Ullmann, BASF
11
• BASF is a net buyer of benzene and propylene
• BASF is a net seller of ethylene - however, very low representation in the ethylene merchant market (<15% of ethylene production)
Production/Demand Balance ofBASF Cracker Products
Ethylene
Butadiene
Propylene
Benzene
BASF Own Production
Global Position
low
low high
high
BA
SF
Cap
tive
Dem
and
Toluene
12
Global Ethylene Market Segments
Source: CMAI, BASF
BASF in the Ethylene MarketSmall and Different
BASF:
• Participates only in about 30% of the ethylene derivatives markets*- Glycols- Styrene- Others,
e.g. EO derivatives
• Can manage and balance the limited direct impact of Middle East ethylene derivatives imports inside the Verbund
GlycolsPVCPolyethylene Styrene Others
57%
16%
7%
7%
13%
* BASF PVC sales via Solvin(Solvay)
Global Ethylene Market 2004:103 million tons
BASF Sales to Ethylene Applications
9%
14%
32%
45%
BASF Sales 2004:1.7 million tons
13
0
50
100
150
200
250
300
350
1995 1996 1997 1998 1999 2000 2001 2002 2003 20040
2
4
6
8
10
12
14
• Correlation between ethylene margin and
- Verbund margin: 13%
- Group margin: 25%
BASF Verbund Margin in % (rhs) **Europe C2 Cash Margin in EUR/t (lhs) *
Ethylene Margin Not Suitable as a Proxy for BASF’s Profitability
* Based on CMAI figures: NWE ethylene contract price./. naphtha-based cash cost
** Verbund margin = EBIT / sales (in Chemicals, Plastics,Performance Products – figuresadjusted to today’s portfolio)
*** Group margin = EBIT / sales (all segments; figures adjusted to today’s portfolio)
BASF Group Margin in % (rhs) ***
14
85%
25%
13%
10%
-11%
-13%
-20% 0% 20% 40% 60% 80% 100%
Potential Proxies for BASF’s Profitability
Correlation
Industrial Production and BASF Margin
Ethylene Margin and BASF Margin
Propylene Margin and Verbund Margin
Benzene Margin and Verbund Margin
Oil Price and BASF Margin
Ethylene Margin and Verbund Margin
15
Strategic Objective Cracker Products:
To ensure reliable and competitive supply of BASF-Verbund with cracker products
16
Strategy for Cracker Products
R&DAssets
Continuous strivefor optimization ofown production assets
• Capacity expansions• Productivity
enhancements• Logistics enhancements
Participation in world-scale capacity and infra-structure investments
• Joint ventures• (Future) participation in
existing or new facilities
Promotion of dedicated technologiesto match up captive supply/ demand
• Metathesis• Dehydrogenation• Dealkylation
Focus on upgrading of cracker “co-products”, e.g. C5- and C9-streams
Make & Trade
Selective participationon both sides (buyer/ seller) of the market
• Homogeneous andheterogeneous swaparrangements
• Hedging
in close combinationwith own production
Business
17
Petrochemical Market DynamicsRegional Trends
• Mature Market
• Slow demand growth
• High feedstock cost (gas)
• Declining exports
NAFTAIn a Defensive Position
• Mature market
• Slow demand growth inWestern Europe
• Integrated industry network
EuropeThe Retiring Hero?
• Demand growth 4.5% p.a.
• No self-sufficiency forseen
until 2015
AsiaThe Infinite Sponge
Middle EastEmerging Ethylene Center• Negligible home market
• Capitalizing on feedstock
advantages (ethane)
• World-scale capacities
18
Worldwide Cracker Locations
AntwerpLudwigshafen
Port Arthur
NanjingGeismar
BASF Capacities:
• Ludwigshafen:- C2: 620,000t- C3. 370,000t
• Antwerp:- C2: 800,000t- C3: 480,000t
• Port Arthur*:- C2: 830,000t- C3: 860,000t
• Geismar (ethane based)**:- C2: 575,000t- C3: 35,000t
• Nanjing***:- C2: 600,000t- C3: 300,000t
* BASF share: 60%** BASF share: 41.6%*** BASF share: 50%
19
Strategy EuropeMeasures for Future Development
Reliable production platform - less capacity loss than competition(BASF 2.5%, industry average 6.7% in 2004)
• Antwerp:- Leading cost position- Capacity expansion in 2007- Opportunities for broadening of
product slate
• Ludwigshafen: - Competitive cost position- Synergies through integration of
both crackers
Further integration into European industry network:
• Active participation in joint European pipeline projects (e.g. EPS, EPDC)
• New business models to shareworld-scale economics and tominimize logistics cost
BusinessAssets
20
Strategy North AmericaStatus Quo
• New world-scale assets in Port Arthur, Texas
• Integrated into petrochemical network on US Gulf Coast
• Over the fence supply for captive demand
• Advantageous market position in North America:
- BASF operates naphtha based cracker- 64% of total ethylene capacity in North America is gas-based- Naphtha based cracker margins expected to remain aboveethane based cracker margins
- Enhanced propylene yield by Metathesis (C2:C3 = 1:1 instead of 1:0.6)
- World-Scale C4-Verbund in tight market
21
• Logistics enhancements to allow for further feedstock flexibility
• Capitalizing on further integration opportunities with the refinery
• Selective capacity/product slate expansions (e.g. for Aromatics)
• Low cost debottleneckingpotential
Strategy North AmericaMeasures for Future Development
Cracker
C4-Complex
Refinery
22
• Commercial start-up in June 2005
Measures for Future Development
• Low cost debottleneckingpotential of existing plants, construction of new plants
Strategy Asia/PacificIntegrated Petrochemical Site in Nanjing, China
23 0 0 0
New Options through R&D
BenzeneBroadening of the feedstock basisto take advantage of market fluctuations e.g. benzene from steam-dealkylation
ButadieneCapturing of market opportunitiesfrom dedicated productione.g. butadiene ex butane
Propylene EthyleneTargeted closure of the captive supply/demand gape.g. metathesis, PDH
Ethylene
Butadiene
Propylene
Benzene
BASF Own Production
Global Position
low
low high
high
BA
SF
Cap
tive
Dem
and
24
1 | Cracker Products
2 | Alkylene Oxides & Glycols
3 | Plasticizers & Solvents
4 | Key Statements
25
Alkylene Oxides and Glycols
Petrochemicals
Value Chains of the
BASF Verbunddeliver
~ 8000 Products
e.g.Plasticizers
Solvents
• Oxo- & higher Alcohols
• Glycolethers
Cracker Products
• Ethylene
• Propylene
• Butadiene
• Benzene
• Toluene
• ...
Alkylene Oxides
• Ethylene Oxide
• Propylene Oxide
Glycols
• EthyleneGlycol
• PropyleneGlycol
26
Products
• Ethylene oxide (EO)
• Ethylene glycol (EG)
• Propylene oxide (PO)
• Propylene glycol (PG)
• Used in production of: Polyester fibers, PET, surfactants, polyols, antifreeze, amines and break fluids
Positioning
• Leading ethylene oxide equivalent producer in Europe, #4 worldwide
• 50% for internal added value chains
• 50% of sales to third parties
Alkylene Oxides and Glycols
27
Strategy
• Secure supply of alkylene oxides and alkylene glycols to BASF´s downstream derivatives at most competitive conditions
• Maintain strong merchant market position in European EG market
• Investments in new EO and EG facilities in Nanjing (started up in May 2005) to benefit from growth opportunities in China
Alkylene Oxides and Glycols
28
1 | Cracker Products
2 | Alkylene Oxides & Glycols
3 | Plasticizers & Solvents
4 | Key Statements
29
Plasticizers and Solvents
Petrochemicals
Value Chains of the
BASF Verbunddeliver
~ 8000 Products
e.g.Plasticizers
Solvents
• Oxo- & higher Alcohols
• Glycolethers
Cracker Products
• Ethylene
• Propylene
• Butadiene
• Benzene
• Toluene
• ...
Alkylene Oxides
• Ethylene Oxide
• Propylene Oxide
Glycols
• EthyleneGlycol
• PropyleneGlycol
30
Products
• Oxo-C4-products: Butyraldehyde, butanols, 2-Ethylhexanol (2-EH)
• Raffinate based oxo-alcohols: Isononanol (INA), 2-Propylheptanol (2-PH), Tridecanol (TDN)
• Solvents: Propionaldehyde, alcohols, glycol ethers, butylacetate
Positioning
• World leader oxo-C4 products, #2-3 in C4 based alcohols, sole producer of 2-PH
• 50% of sales to third parties
• Proprietary technologies
Solvents
31
Strategy
• Secure competitive supply of Verbund-added value chains (i.e. acrylates and surfactants)
• Selectively expand business in NAFTA and Europe
• Exit 2-EH production in Europe
• Restructure oxo-portfolio in NAFTA (2-EH plant in Freeport; 2-PH plant in Pasadena)
• Expand business in Asia (oxo-C4 in Kuantan and Nanjing)
Solvents
32
Products
• Phthalic anhydrid (precursor)
• Phthalic esters
• Polymeric plasticizer
• Hexamoll DINCH
• Increase flexibility of normally rigid PVC thereby opening a wide range of applications (e.g.cables, roofing films, medical devices, flooring)
Positioning
• #2 worldwide
• 100% of sales to third parties
• Proprietary technology for phthalic anhydrid
Plasticizers
33
Strategy
• Secure and develop global #2 position on the basis of regional Verbundproduction
• Shift towards cheaper raw materials, i.e. C2/C3 à C4
• Strengthen modern and cost efficient 2-PH based DPHP as well as eco-efficient Hexamoll DINCH plasticizer business
• Restructure production platform and business in NAFTA
Plasticizers
34
1 | Cracker Products
2 | Alkylene Oxides & Glycols
3 | Plasticizers & Solvents
4 | Key Statements
35
BASF PetrochemicalsKey Statements
• Profitable cornerstone of BASF‘s petrochemicals-based value chains throughout the regions
• Manufacturing and marketing of a broad portfolio of alkylene oxides, glycols, plasticizers and solvents
• Reliable and competitive supply of cracker products and other petrochemical raw materials primarily for captive use and complementarily to third party customers
• Strategic focus on „Local Production for Local Consumption“
36