After BASF SE issued its full-year profit warning on Tuesday, shares in the giant chemical conglomerate fell sharply in Europe’s stock markets.
Read the full BASF Group EBIT report HERE.
The drop in profits was the most in two months, at 6.5 percent, pushing related industries lower in what one trader described as “shocking.” BASF sells to a large number of industries and across many countries globally, raising fears that the full scope of the profits warning could have a wide-ranging effect on the global economy.
BASF puts the blame for the profit warning on a slowdown in the global automotive industry and the prolonged trade war between the U.S. and China. They also blame the extreme weather conditions in the U.S. where the demand for agricultural products decreased due to the extended flooding.
“I doubt in the space of materials and other cyclicals that people will have a lot of confidence in guidance,” Larry Hatheway, chief economist at asset manager GAM Holding of Switzerland, said by phone, reports the Financial Post. “This season is going to be challenging for BASF and others.”
The outlook is rather bleak, with the company expecting second-quarter earnings before interest and taxes of around 500 million euros ($560.9 million), more than 60 percent below consensus expectations, according to Baader Helvea.
“Overall, uncertainty remains high,” BASF said in a statement. “The conflicts between the United States and its trading partners, particularly China, have not eased contrary to what was assumed in the BASF Report 2018. In fact, the G20 summit at the end of June has shown that a rapid détente is not to be expected in the second half of 2019.”
“As a consequence of the considerably weaker-than-expected business development in the second quarter of 2019 and the slowdown in global economic growth and industrial production, mainly due to the trade conflicts, BASF now anticipates considerably lower EBIT before special items of up to 30 percent below the prior‑year level,” the company said.