UPDATE 2-BASF plans record spend on U.S. plant, lured by shale gas

Fri May 2, 2014 6:50am EDT

* Considers spending more than 1 bln eur on U.S. plant

* Q1 adj EBIT down 3 pct at 2.1 bln eur, in line with poll avg

* Sticks to outlook for slight increase in 2014 adj EBIT (Adds CFO comment on investment plans, shares)

By Ludwig Burger

FRANKFURT, May 2 (Reuters) - BASF, the world's No.1 chemicals company by sales, said it could spend more than 1 billion euros ($1.4 billion) to build a petrochemical plant in the United States, joining global peers attracted by cheap shale gas there.

Natural gas is about three times cheaper in the United States than in Europe, encouraging BASF to redirect investment away from its home region, which still accounts for more than half of group sales.

The planned plant on the U.S. Gulf Coast - which would be BASF's largest investment in a single facility - would convert natural gas into propylene, a key building block for advanced materials such as insulation foams, lubricants and superabsorbants for diapers.

BASF is seeking to curb its reliance on suppliers of propylene, and more in-house production will give it flexibility to make more advanced products that need propylene as input, finance chief Hans-Ulrich Engel said.

The German firm announced the possible U.S. investment along with first-quarter results. Operating profit fell 3 percent as a decline in foreign currencies against the euro - which lowered the value of revenue from overseas markets - offset higher sales volumes of farming pesticides and precursor chemicals.

BASF said it was still in the early planning stages for the American plant, and gave no timeframe, but it has a track record of following through with big investments after going public with proposals.

"We are currently in a net buyer position for propylene. That's the key driver for considering an investment," Engel told analysts in a conference call.

Propylene has mainly been made from the oil distillate naphtha, but cheap shale gas from hydraulic fracturing, or fracking, is gaining importance as a feedstock.

PROJECTS

The company is not alone in looking to the United States. Lobby group the American Chemistry Council said in February that the value of planned chemical industry investment projects linked to shale gas had topped $100 billion, more than half of which is from firms based outside the United States.

Shares in BASF were up 0.2 percent at 1045 GMT, hovering near a record high, outperforming the STOXX Europe 600 Chemicals index which was down 0.4 percent.

First-quarter earnings before interest and tax (EBIT), adjusted for one-off items, slipped 3 percent to 2.1 billion euros ($2.9 billion), broadly in line with the 2.12 billion euro average estimate in a Reuters poll of analysts.

BASF's business in North America was the only regional division that achieved a rise in first-quarter operating earnings, up 8 percent on strong demand for basic petrochemicals as well as herbicides and fungicides.

That compared with a 1 percent decline in Europe due to an unusually mild winter which led to lower demand for heating gas, and a 29 percent drop in Asia where there was weaker demand for basic petrochemicals.

Group profit was hit by a depreciation of the dollar against the euro, as well as a decline of emerging market currencies such as the Brazilian real and the Malaysian ringgit

BASF said that despite unfavourable currency shifts, it continued to target a slight increase in adjusted EBIT this year.

($1 = 0.7212 euros) (Additional reporting by Frank Siebelt in Mannheim; Editing by David Goodman and Pravin Char)