BASF to keep plastics business

FRANKFURT Tue Jul 3, 2007 6:57am EDT

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FRANKFURT (Reuters) - BASF BASF.DE has ruled out selling its plastics business and envisages only smaller portfolio adjustments amid the wave of consolidation in the sector, the head of its plastics division told Reuters.

John Feldmann also said in an interview he welcomed the emergence of strong competitors that can ensure market stability. He saw no signs of any imminent weakening of the strong demand that has kept plastics prices high.

The chemicals industry has seen big deals this year. Saudi Basic Industries Corp 2010.SE bought General Electric's (GE.N) GE Plastics for $11.6 billion and Basell BASL.UL acquired Huntsman Corp (HUN.N) for $9.6 billion including debt.

BASF's plastics division is a big player, but Feldmann said it was unlikely to plunge into mergers and acquisitions.

Asked if the plastics business was a divestment candidate, he said: "No. This is a core business that fits excellently with our group strategy, that has huge growth potential and that is very profitable. There is no reason to get out."

Instead, BASF will try to build up the business, which last year generated 12.8 billion euros ($17.39 billion) in sales -- 24 percent of the group's total.

"We want to further strengthen the position of the plastics business within BASF," Feldmann said, although BASF's size and broad product range preclude a mega-deal.

"A very large acquisition is practically ruled out because we have a very strong market position in most areas," he said.

Divestments are also possible as BASF pursues what Feldmann called "rather active portfolio management".

He was not more specific in the interview, which was conducted last week and embargoed for release on Tuesday.

One area BASF has focused on is its styrene business.

"We have a rather difficult market situation for standard products polystyrene and ABS. This is the case worldwide for all our competitors as well," he said.

Asked whether BASF would bulk up the businesses or sell them, he said: "We are looking at all possible options. We are very well positioned with the specialties and the foams."

MARKET CONSOLIDATION

In a separate company presentation, Feldman reiterated his division expected to hold operating profit at least steady this year. He said global demand for plastics should keep growing 5 percent a year to 2015.

BASF shares were up 1.3 percent at 97.37 euros by 1015 GMT, the second-leading gainer in the DJ Stoxx European chemicals sector index .SX4P.

Feldmann told Reuters the market was going through dramatic changes as a consolidation wave rolls through a sector that had earlier been marked by spin-offs and divestments.

"Big new plastics manufacturers are forming. We welcome it when stable rivals that focus on long-term growth enter the market. That is better for everyone than a situation in which businesses are constantly changing hands," he said.

Feldmann said the outlook for prices remained solid.

"There are no signs at the moment that the current high demand could suddenly break down or have a clear slowdown," he said, although he cited differences among market segments.

"For some products we have reached the upper limit for prices and market demand is going down, for example in polystyrene," he said. "We see a clear decline in U.S. demand for polystyrene, while Europe is stagnating."

Even should the market turn lower, BASF's plastics division was placed to earn its cost of capital every year, he added.

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