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BASF sees strong trend continuing

BASF sees strong trend continuing

FRANKFURT, June 5 (Reuters) – BASF AG will benefit further from booming agricultural markets as farmers seek more chemicals to kill fungi, weeds and bugs to boost crop output, a top executive told Reuters.
“We had a strong start this year. This positive trend is continuing into the second quarter,” BASF’s president for crop protection Michael Heinz said in an interview.
“We will also look at significant price increases,” he said, adding that rising raw material and energy prices are among the factors driving price hikes. He said the impact of price increases would be felt even more in the second half and next year.
Speaking this week at his office in a renovated 1922-built villa in the town of Limburgerhof in central Germany, Heinz, 44, said the period of overcapacity in the industry was over.
“It is a nice problem that we are now having, to think about expanding capacities,” he said.
Like bigger rivals Bayer CropScience and Syngenta, BASF is operating at full steam to cash in on a global rush for chemicals that can boost output of crops such as corn, soybean and wheat given rising demand and soaring prices.
Other top players fighting for a slice of the 29 billion euro ($45 billion) crop protection market include Dow Chemical and Dupont.
“Supply is tight throughout the industry and it is just that there has been an exorbitant increase in demand,” Heinz said. “No manufacturer had really foreseen 24 months ago that we would see this type of development”.
BASF shares were down 0.3 percent at 96.41 euros by 0807 GMT, while the DJ Stoxx European chemicals index was off 0.4 percent.
STRONG MARGINS
In the first quarter, earnings before interest and taxes before special items at the agricultural products segment of BASF rose 12 percent to 259 million euros on the back of a 5 percent increase in sales.
The business, which achieves margins of over 20 percent and is relatively immune to economic cycles, accounted for 6 percent of group sales and 11 percent of operating profit before special items.
Klaus Welsch, head of BASF crop protection’s European business, said farmers were using more higher-value products to protect their crops.
“We can see a real paradigm shift away from pure disease control towards yield protection and enhancement,” Welsch said.
Heinz added: “Farmers are going for more preventative types of solutions. As a result, we see very strong demand”.
BASF, the world’s biggest chemicals group by sales, is the world’s third-largest player in insecticides and fungicides and number five in herbicides.
Heinz, who joined BASF in 1984 and holds an MBA from Duke University in North Carolina, said the company has one of the strongest active-ingredient pipelines in the industry.
“We certainly feel that we have an edge over our competitors,” he said, adding that one key new product is F-500 which controls all classes of fungi in many crops including cereals, grapes, fruits and vegetables.
“F-500 has been very, very successful. Last year, this product was on more than 10 million acres in North America. We intend to more than double it this year,” he added.
Heinz said he was “very optimistic” thanks to the group’s cooperation with Monsanto, the top biotech seeds company, in promoting the product for corn and soybeans.
BASF and Monsanto also agreed in March last year to collaborate on developing higher-yielding crops that are more tolerant to adverse environmental conditions such as drought.
Asked about the impact of market speculation on commodity prices, Heinz said: “The icing on the cake is speculation but the cake has very solid fundamentals”.
 

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