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BASF Faces Prolonged Shut-Down After Chemical Site Explosion

BASF SE faces a prolonged shut-down of production units at a chemical site in Germany, the largest of its kind in Europe, where a deadly explosion and fire killed two employees and injured dozens.

The German manufacturer said two steam crackers at the installation remain halted and another 20 facilities are either stopped or only partially working, according to a statement Tuesday. Crackers are the starting point for producing basic chemicals that go into everything from insulation materials to solvents.

In addition to the casualties, who were both firefighters, BASF said one person is still missing after blasts Monday at the sprawling site at Ludwigshafen, a town on the banks of the Rhine River where the company has its headquarters and biggest plant. Seventeen people were injured in the fire that took more than 12 hours to extinguish, eight of them severely.

The explosion is a setback for the world’s biggest chemicals maker, which has sought to reduce the number of accidents on site, revising goals for safety and health in 2015.
While German prosecutors and police in Ludwigshafen plan to carry out an investigation into the explosion, an extended shutdown of manufacturing capacity could also crimp earnings just as the company last week announced an uptick in demand for specialty chemicals.

Some production units could be down for an extended period of time, hurting sales and earnings, as investigations by the company and government agencies take place, Baader Bank analyst Markus Mayer said in a note to clients.

“The full impact is so far hard to quantify,” he said. Gathering evidence is normally “spread over several weeks and can be prolonged to over a quarter.”

BASF shares were up 1.6 percent at 79.49 euros as of 12:01 p.m. local time.

Fire broke out on a supply line at about 11:30 a.m. local time Monday, leading to a series of blasts at the plant’s North Harbor area, according to the company. The incident occurred while work was taking place on piping in the area.

Gas Leakage

BASF said measurements so far haven’t shown any “critical” amounts of chemicals in the air. The supply of raw materials has been interrupted and while the company hasn’t provided details about products, it has said the pipelines that burned included ones that carry ethylene and propylene, building blocks for more specialized chemicals.

There is still a “slight” leakage of gas, likely ethylene or propylene, in the area, the company said Tuesday. It has so far declined to discuss the financial costs of the explosion, saying in a statement it’s “devastated” by the loss of lives and injuries.

The closing of the two steam crackers will mainly impact the company’s basic chemicals division, which makes up about 21 percent of sales and about 30 percent of earnings before interest, taxes, depreciation and amortization, Mayer said. The analyst estimates that 6 percent of BASF’s annual earnings might be directly impacted by the fire, with as much as 3 percent of Ebitda at risk because the shutdown may last more than a quarter.

A prolonged shutdown may tighten European ethylene markets in 2017, benefiting Dow Chemical Co. and LyondellBasell Industries NV, Nomura analyst Aleksey Yefremov said in a note to clients.

The North Harbor, where the explosion took place, is a terminal for combustible fluids such as naphtha, methanol and compressed liquefied gases. More than 2.6 million tons of goods are handled there each year, and an average seven ships a day moor at its docks, according to BASF’s website. It is one of three ports BASF operates at the Ludwigshafen site.

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