German chemical company BASFSE reported first-quarter net profit fell 68 percent as sales sank because of the recession and said it would cut at least 2,000 jobs this year. Ludwigshafen-based BASF ( BF - news - people ), the world's largest chemical company by sales, said Thursday net profit for the January-March period was down to euro375 million ($499 million) from euro1.2 billion in the first quarter of 2008. Sales fell 23 percent to euro12.2 billion from last year's euro16 billion. BASF said it faces enormous challenges, and expects "a decline in sales ... and an even greater decline in income from operations" in 2009. The effect of integrating Swiss chemical company Ciba Holding AG is also expected to hit BASF's results this year. BASF has also said that integrating Norwegian energy exploration company Revus Energy, acquired late last year, will also have a negative impact this year. "There is currently no sign of a reversal of this trend, and we do not consider temporary topping of inventories in some regions and industries to be signs of a sustainable turnaround," Chief Executive Juergen Hambrecht said. The company "will restructure and, where necessary, close or sell plants and sites that cannot ensure the company's long-term competitiveness," BASF said in its outlook. "The company will cut at least 2,000 positions by the end of 2009." BASF, with a global work force of about 97,000, did not specify where the jobs would be cut. It said it experienced lower sales and profits in all regions. In November, BASF said it would shut a total of 80 plants worldwide and cut production at 100 more. Earlier this month, BASF said it was reviewing where inGermany it will introduce shorter work hours starting June 1, and has indicated a production facility at its Ludwigshafen headquarters will see hours cut. German staff has already been shuffled to different production sites to keep them working. Already more than 4,000 people now work on shorter shifts at eight sites in Europe. Another 3,000 are expected to join them. The company said it was pushing through other ways to reduce costs and speed up business processes, in hopes it will be able to improve earnings by more than euro1 billion per year starting in 2012. BASF said first quarter agriculture product sales improved 21 percent to euro1.1 billion, thanks to higher volumes and price increases, as the new growing season got off to a strong start in Europe and North America. The agriculture division's operating profit improved 31 percent to euro340 million. BASF, which also explores for and refines oil and natural gas products, said its oil and gas segment sales improved 4 percent to nearly euro4 billion, but the division's earnings declined 26 percent to euro725 million, due to factors including falling oil prices and lower exploration prices. The company said the chemicals division's sales decreased 45 percent to euro1.4 billion because of lower volumes and prices, but the unit still made an operating profit of euro74 million. The company's plastics division saw sales decline 39 percent to euro1.5 billion and reported a euro30 million operating loss - partly blamed on idle capacity at its polymers division, and dramatic overall sales declines. Investors were cheered by BASF's efforts to counter the crisis. Its shares were up 7.5 percent at euro28.60 in Frankfurt afternoon trading. http://www.forbes.com/feeds/ap/2009/04/30/ap6361492.htmlAssociated Press
BASF reports steep fall in 1Q net profit
By GEORGE FREY , 04.30.09, 10:05 AM EDT
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April 2009
April 30, 2009
Repi Update
The Italian manufacturer of colour dispersions and additives reinforces cooperation with Novara Profile Extrusion and appoints new sales Manager for the European market. Novara Profile Extrusion, based near Johannesburg, and Repi (Lonate Ceppino, Italy) reinforce their cooperation in the South African market. Due to their partnership for the distribution of liquid colours for thermoplastics, both companies have agreed to include in the portfolio also the range of products for Polyurethanes. Mrs. Lorita Diem, of Novara Profile, will be the contact person for the South African PU customers. http://www.polimerica.eu/index.php?option=com_content&task=view&id=180&Itemid=9Repi keeps on growing 
WEDNESDAY, 29 APRIL 2009
Also in Europe the Italian company is strengthening its sales activities in spite of the worldwide economic slowdown. By the appointment of a new experienced sales Manager, Mrs. Andrea Klammt, Repi will intensify the sales activities in the European market. In the past Andrea Klammt worked as Sales Manager for iSL-Chemie. At Repi she will be responsible for sales in some European countries and for selected Key Accounts.
“The sales structure reinforcement is only one of the activities that will strengthen our position within the polyurethane market”, comments Michael Rath, General Manager for the PU business of Repi.
Recent investments in the R&D will ensure the further growth of the business, the company says. For example, Repi is offering to its slabstock customers new highly concentrated black dispersions also improving the bonding strength after flame lamination. This new line is suitable for universal use in ether and ester foams. Another new line of pigment dispersions based on phthalate-free carriers and vegetable oils, was already created some time ago by the R&D.
Dow Chemical In The Black During Q1
Dow Chemical (DOW Quote) reported first-quarter earnings fell 97% to $24 million, or 3 cents a share, but topped the estimates of analysts, as moves to control costs and prices mitigated the effects from what the company called the "worst global recession in decades." The latest quarter included severance charges and $48 million in pretax transaction costs related to the acquisition of Rohm and Haas. Sales in the quarter were $9.1 billion, down 39% from sales of $14.8 billion a year earlier. Analysts surveyed by Thomson Reuters expected a first-quarter loss of 21 cents a share on sales of $11.69 billion. Volume declined 19% in the first quarter, while prices fell 20%. In a statement Thursday, Dow Chemical said sales in its agricultural segment rose 10% from a year earlier, reflecting a 10% increase in volume. Dow said "rapid actions to reduce operating costs" in the quarter resulted spending by $270 million from a year earlier and sequentially. "Our positive earnings in this recessionary environment were the direct result of our rapid actions to reduce costs and tightly manage operations," said Chairman and CEO Andrew Liveris. "We achieved profitability in spite of continued weak demand throughout most of our value chains and further deflation in feedstock and energy costs which put pressure on prices, particularly in the basics segments." Dow said it's "prudent to expect that 2009 will still be a recessionary year globally, and we are not counting on material improvements in economic conditions in the near term." http://www.thestreet.com/_yahoo/story/10494233/1/dow-earnings-drop-97-but-top-estimates.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
Excluding certain items, earnings in the quarter were 12 cents a share. In the year-earlier first quarter, Dow reported net income of $941 million, or 99 cents a share.
Joseph Woelfel
April 29, 2009
California Surfboard Market Update
China’s Threat to Local Surfboard Builders
While Common “Wisdom” Suggests that Local Surfboard Builders Have Been Emasculated by Outsourcing to Countries Like China and Thailand, New Evidence Shows that Local Manufacturers Are More Resilient than Previously Thought It’s become common “wisdom” among a broad swath of surfers that the outsourcing of the board building industry to China and Thailand has deeply and irreversibly damaged the business of the local surfboard builder.
The thinking is fairly natural. Before the outsourcing began to gain momentum with the decline of Clark Foam, the local surfboard builder had sort of a monopoly in the industry. All surfers, whether beginner, intermediate, or advanced, had basically no other option but to purchase a locally built surfboard. But after the outsourcing went wild, the local board builder had his market share reduced to advanced surfers, while most of the beginners and many of the intermediate surfers sought the more inexpensive outsourced surfboards, aka “pop-outs.” And since their skill level was insensitive to the intricacies and nuances of a custom shape, the appeal of the pop-outs became all the more pressing.
Then, thinking of the beginner, intermediate, and advanced surfboard market as somewhat an even distribution, the market share breaks down into 33% for the beginner, 33% for the intermediate, and 33% for the advanced market. At this point, math leads one to the inevitable conclusion that the local surfboard builder, whose market now is basically only the advanced surfer, saw his market share shrink from 100% before the outsourcing boom to 33% after it took place. As a result, one is naturally led to think of this phenomenon as the emasculation of the local board builder.
A recent report, however, conducted by Transworld Magazine, paints a radically different picture of the loss of market share. Although consistent with the thought that Asia has had a major role in snatching business from the local board builder, the report, based on more than 100 leading retailers and 50 top shapers, states that Asia manufactures 16.5% of the surfboards. Furthermore, the report says that the US is responsible for 71.9% of the manufactured boards; Central and South America for 6.4%; Europe for 1%; Australia for 4.4%; and Africa for 0%. Now if the manufacturing percentage is an indicator of market share, China, Thailand, and its cohorts, which are the capitols of outsourcing, have a claim on a relatively meager 16.5% of the buying market while the US, Central and South America, Europe, and Australia have a claim on the bulk of the market (83.7%), with the US leading the pack by leaps and bounds (71.9%).
If the above remarks are correct, there is at least a lesson to be drawn and a concern to be considered. The lesson is that, even though the local board builder has certainly lost a significant market share to countries like China and Thailand (16.5%), the common “wisdom” among many surfers overestimates Asia’s market grab, which is relatively meager when compared to America’s dominance (71.9%) in this sector. But the concern to be considered is that today’s’ small consumer base could very well turn into tomorrow’s monopoly. Since the fall of Clark Foam, the apparent exponential growth of Asia’s market share adds credibility to the local manufacturer’s fear that today’s outsourcing woes could very well mean his competitive doom tomorrow. (Mylocallineup.com takes up this concern about the future of the board building industry and the relation between pop-outs and custom in an upcoming report.) But what’s important to glean from the present article is that, even though Asia has posed a formidable threat to the local surfboard builder, shapers, glassing shops, and suppliers, from California to Byron Bay, have been more resilient than common “wisdom” suggests.
April 28, 2009
Sounds Good, But . . .
This article sounds good, but the fact is that the costs of the financial mess are going to be passed down to companies and people that make money. Additional FDIC charges to solvent banks, to pay for those insolvent banks, are now being passed along to customers via a monthly charge based on how much money is in your account. Now the banks are adding interest rate floors to all loans--4-5% or some minimum spread, even though LIBOR and prime are much lower. In addition to these floors, customers will no longer be able to borrow at prime, but the new loan interest floors will be prime plus 0.5-5% depending on the state of the business. If you have a loan today at prime (3.25%) expect the interest rate to go up to a minimum of say 5% or more, depending on how much of a kicker the banks add. Banks have to borrow to support their loans and because of the failures, they have to pay a premium to borrow and so are passing this along to their good customers.
By Dakin Campbell and John Detrixhe
April 27 (Bloomberg) -- Wherever you look, Federal Reserve Chairman Ben S. Bernanke’s efforts to repair global credit markets are showing signs of working.
The Libor-OIS premium that indicates banks’ reluctance to lend to each other fell to 0.85 percentage point today, the lowest level since before Lehman Brothers Holdings Inc. collapsed in September, according to data compiled by Bloomberg. Companies have raised a record $468 billion in U.S. bond sales this year. Prices of the most senior portions of mortgage bonds backed by prime U.S. jumbo loans have climbed 24 percent in the past five weeks, according to London-based Barclays Capital.
Investor confidence in financial markets is returning after the U.S. government and the Fed agreed to spend, lend or commit $12.8 trillion to end the longest recession since the Great Depression. Finance chiefs from the Group of Seven predicted in Washington on April 24 that the world economy will start to rebound later this year.
“Every place where the Fed has acted aggressively, we’ve seen a meaningful improvement,” said Laurence Meyer, a Fed governor from 1996 to 2002 and now vice chairman of consulting firm Macroeconomic Advisers LLC in St. Louis.
The central bank’s balance sheet expanded by $1.3 trillion to $2.2 trillion since August as the Fed purchased everything from corporate commercial paper to bonds backed by consumer payments on mortgages and car loans. Bernanke also agreed to buy $1.15 trillion of Treasuries and mortgage-backed bonds to keep borrowing rates from rising after cutting the target interest rate for overnight loans between banks to a range of zero to 0.25 percent in December from 5.25 percent in 2007.
TED Spread
Banks are lending to each other again, after credit dried up in August 2007 when losses from subprime mortgages left financial institutions with securities and financial contracts they couldn’t value. They froze when Lehman filed for the biggest bankruptcy in history on Sept. 15. The TED spread measuring the difference between the London interbank offered rate for three-month dollar loans and the Treasury bill rate rose as high as 4.64 percentage points Oct. 10. It was 96 basis points today.
Libor had dropped for 20 straight days, to 1.05 percent, the lowest since June 2003. That’s the longest streak since it fell 22 days starting Oct. 13, when central banks around the world offered as much dollar funding as required.
‘Better Shape’
“The short-term markets are in much better shape because the U.S. government has done a lot to help,” said Barr Segal, a managing director at Los Angeles-based TCW Group Inc., which holds $90 billion in fixed-income assets.
Libor, calculated by the British Bankers’ Association, helps determine borrowing costs on about $360 trillion of financial agreements ranging from home mortgages to corporate bonds, according to the Bank for International Settlements in Basel, Switzerland.
The difference between Libor and the expected average federal funds rate over the next three months -- the Libor-OIS spread -- surged to 3.64 percentage points the same day as the TED spread jumped. The gap averaged about 0.11 percentage point from the start of the decade to mid-2007. The spread narrowed to the least since Sept. 12 as Credit Suisse Group AG, Goldman Sachs Group Inc., Citigroup Inc. and JPMorgan Chase & Co. posted first-quarter results this month that beat analysts’ forecasts.
Improvement in Libor-OIS “is an indication that the money markets are healing,” said Thomas Girard, who helps oversee $115 billion in fixed income assets for New York Life Investment Management in New York. “It’s moving in the right direction.”
Consumer Credit
While markets are healing, the Libor-OIS is nowhere near what former Fed Chairman Alan Greenspan would call “normal.” In June, he said that the spread was the best way to tell when lending returned to health, which would be when the gap was about 25 basis points, or 0.25 percentage point.
Consumer credit costs are still high by historical standards compared with what banks pay to borrow, an obstacle Bernanke says must be overcome to fix the economy.
“Restoring the flow of credit to households and businesses is essential if we are to see, as I expect, the gradual resumption of sustainable economic growth,” he said April 3.
The rate on 30-year fixed mortgages averages 1.92 percentage points more than what it costs the U.S. government to borrow for 10 years as measured by yields onTreasury notes. While that’s down from 3.07 percent on Dec. 19, which was the highest level since 1986, according to Bloomberg data, it’s still above the average of 1.75 percentage points in the decade before the credit crisis began.
Bank Stress Tests
Writedowns and losses of the securities total $1.34 trillion, according to data compiled by Bloomberg. More than 60 U.S. financial institutions have failed over the past two years. Financial regulators may force some of the largest U.S. banks to raise capital or conserve cash after accounting for assets held off their balance sheets after releasing results of so-called stress tests on the 19 largest institutions April 24.
Federal Reserve Bank of San Francisco President Janet Yellen signaled this month that the central bank and the government helped create the market distress when they allowed Lehman to collapse, saying the firm was “too big to fail” and its bankruptcy caused a “quantum” jump in the magnitude of the financial crisis.
The U.S. economy is expected to contract. Gross domestic product will shrink 2 percent this quarter, after dropping 5 percent in the first quarter, according to the median forecast of 59 analysts in a Bloomberg News survey.
‘Very Depressed Levels’
Prices of some assets may have risen too fast, given the outlook for the economy. Bonds rated CCC returned 24 percent since bottoming on March 9, according to JPMorgan Chase & Co. analysts led by Peter Acciavatti.
“The appearance of stabilization in some economic data should be viewed in the context that almost all segments of the U.S. economy remain at very depressed levels,” the analysts said in a report dated April 24. “At the end of the day, if the economy stabilizes at a very low level, this is not enough for many highly leveraged companies to see enough improvement in earnings to prevent a restructuring.”
Investors are taking comfort from signs that the U.S. economy is stabilizing after contracting 6.3 percent in the final quarter of 2008. Combined sales of existingand new homes have hovered at an annual pace of 5 million since November and construction of single-family houses was little changed in March for a third month.
Yield Curve
Retail sales rose an average 1 percent in the first two months of the year after declining in each of the previous six months. Consumer confidence measures increased from historic lows, and factory surveys, including indexes by the New York and Philadelphia Fed banks, have shown a slower rate of decline in April.
“The economy right now is in a healing process,” said Jonathan Basile, an economist at Credit Suisse in New York. “We’re stabilizing first. The rebound comes later.”
The Treasury yield curve measuring the difference between two- and 10-year yields is expanding, a signal investors expect growth and inflation to quicken. The spread widened to 2.05 percentage points on April 24, within one basis point of the biggest gap since Nov. 24. The curve averaged below zero in 2006 and the first half of 2007 as investors correctly forecast a recession.
‘Investor Confidence’
“Time starts to heal things in this business, especially when you have a yield curve that is very steep,” said Donald Galante, chief investment officer and senior vice president of fixed income at MF Global Ltd. in New York, which provides trading execution and clearing services.
Investors are gaining confidence in companies, demanding an extra 6.9 percentage points in yield on average to corporate bonds instead of Treasuries, down from 8.96 percentage points in December, according to Merrill Lynch & Co.’s U.S. Corporate and High Yield index. That represents an average annual savings for companies of about $20 million on each $1 billion of bonds sold.
Bond sales by companies with investment-grade credit ratings are 33 percent ahead of the same period in 2007, when they issued the most ever, Bloomberg data show. Securities rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s are considered below investment grade.
“There is a lot of money moving into the corporate bond space,” said Greg Haendel, who helps oversee $6.2 billion as a money manager at Transamerica Investment Management in Los Angeles. “The fixed-income markets will be an indicator on the way back up.”
Jumbo Mortgages
Yields on top-rated securities backed by auto loans and credit card payments have narrowed as much as 4.35 percentage points relative to benchmark interest rates since hitting record highs in late November, according to JPMorgan data.
The average rate on auto loans is 2.67 percentage points above one-month Libor. While that is more than the average of 1.84 percentage points over the past decade, it’s down from about 8 percent in December.
Prices of the most-senior class of “prime-jumbo” mortgage securities climbed about 15 cents on the dollar to about 78 cents in the five-week period ended April 23, according to Barclays Capital.
The average rate on a jumbo mortgage, which is bigger than the types of loans that Fannie Mae or Freddie Mac buy, fell to 6.34 percent last week from 7.65 percent in October, according to Bankrate.com. Non-jumbo rates average 4.80 percent, the lowest level since the 1970s, Freddie Mac data show.
‘Tough Road Ahead’
Investors are also buying bonds backed by loans on office buildings, shopping malls and apartment buildings after Treasury Secretary Timothy Geithner announced a plan on March 23 to encourage investors to buy as much as $1 trillion of real-estate assets by using $75 billion to $100 billion from the Treasury and government loans in an effort to cleanse banks of troubled assets.
The yield spread on AAA debt backed by commercial mortgages has narrowed 3.63 percentage points from about 8.5 percentage points since March 20, Bank of America Corp. data show.
Stocks rallied, Treasuries tumbled and gold fell as credit markets advanced. TheMSCI World Index of stocks in developed economies rose 8.9 percent so far this month after tumbling 25 percent at the start of the year.
Treasuries posted their worst first quarter since 1999, losing 1.4 percent, including reinvested interest, according to Merrill Lynch’s U.S. Treasury Master Index. The gauge is down another 1.5 percent in April. Gold, which reached $1,007.70 an ounce, closed at $913.40 on April 24.
“All these policy actions are removing the downside tail risk and the markets are responding in kind,” said Kenneth Volpert, who oversees $180 billion in taxable bonds for Vanguard Group in Malvern, Pennsylvania. “It doesn’t mean everything is great again. We still have a tough road ahead.”
To contact the reporters on this story: Dakin Campbell in New York atdcampbell27@bloomberg.net; John Detrixhe in New York atjdetrixhe1@bloomberg.net.
Last Updated: April 27, 2009 07:47 EDT
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