Chemical Spill

BASF profit warning

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What's going on?

The world’s largest chemicals producer, BASF, warned investors late on Monday that its annual profit would be much lower than expected – and its stock evaporated 4% on Tuesday.

What does this mean?

Global industrial output has been lighter than forecast this year – particularly in the autos sector, where BASF does a lot of business. And as a result, the company’s so far made fewer sales and less profit than it thought it would.

BASF had hoped that the US-China trade conflict would be peacefully dissolved by now, boosting sales of its products – including crop protection chemicals in North America, where demand has also fallen recently. But with no clear deal in sight and uncertainty still high, BASF thinks its second-quarter profit this year will be half what it was last – and that its annual profit will be almost a third lower.

Why should I care?

For markets: Investors fan the flames.

If one of the world’s largest and most diversified chemicals companies has been burned by slowing economic activity and trade wars, then smaller rivals are likely to have been singed too. At least that appeared to be what investors thought: they sold shares of other European chemicals companies on Tuesday. Germany’s Covestro (formerly owned by Bayer) fell 4% and Britain’s Johnson Matthey slid too.

The bigger picture: Trade wars may also take a bite out of Apple.

Investment bank analysts have started turning on Apple: five now recommend selling its shares – the most ever. Some think iPhone sales may suffer further as a result of ongoing US-China trade tensions lowering consumer demand for the expensive devices, which would potentially limit some future revenue in Apple’s highly profitable services segment. As it’s the second-biggest company in the US, a negative shift in sentiment toward Apple has the potential to drag the entire US stock market down.

Originally posted as part of the Finimize daily email.

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