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BASF: major chemical manufacturer in trouble

BASF announced on July 8th that the EBIT before special items for the second quarter was going to be considerably below expectations. That led the chemical leader to revise downwards their outlook for full year earnings growth. The chemical juggernaut blamed the trade war between US and China, the global slowdown in the car making industry, and a bad year for agriculture in North America as the drivers of the decay. At the same time, the chemical company stressed that there is a restructuring plan ongoing that will entail cutting down 6,000 jobs and will hopefully improve efficiency whilst cutting costs.

Although it was BASF that shocked the sector with such dramatic downgrade, this is going to be a tough year for the whole German chemical industry. Bayer, the second largest chemical manufacturer in the country was already immersed in a legal battle that has affected directly their market value. In addition to that, its spin-off companies, Covestro and Lanxess have suffered a fall in their share price significantly in the last year as a result of a slowdown in the chemical sector. The chemical industry has seen the production decrease a 6% in relation to 2018, as well as a drop in demand both interior and exterior over the last year.

Moreover, the macroeconomic framework that has influence the decline of this industry does not same to change anytime soon. That being the instability in Europe, the trade war between US and China and the global slowdown of the automotive industry. Nonetheless, shifting towards more green and sustainable models of business could save the German chemical industry from a grey spell. Although more strict policies regarding pollution may look detrimental at first, if these companies manage to get ahead of these changes in policy by going greener, that would turn into a competitive advantage.