Dhe chemical group BASF wants to see the largest single investment in its history through to the end. BASF today issued final approval for the construction of the Zhanjiang Verbund site in southern China’s Guangdong province, the company announced on Wednesday. In fact, any other piece of news would have been worth a press release, would even have entailed mandatory disclosure on the stock exchange. After all, the construction, which costs up to 10 billion euros, is the most important project in decades. As it is, however, the notification means nothing other than that the board has given the green light to implement the construction, which has been going on for two years, as planned.
The fact that the management of the chemical company has made such a matter of course known in its own statement shows the importance of the construction and the doubts that accompany it. Criticism of globalization, especially of China as the most important market, has become louder since the Ukraine war. Overdependence on China is considered geopolitically risky. Especially since the mega-project driven by CEO Martin Brudermüller not only has friends within the group.
The dimensions are truly large: In the most populous province of Guangdong in southern China, which is characterized by strong industry, specifically in the coastal city of Zhanjiang, the group wants to build a completely new Verbund site with a large number of interconnected production facilities. Most of the products are planned for the Chinese market. According to the group, the giant plant would be the largest production site after Ludwigshafen and Antwerp.
China is already the world’s largest production site for chemicals, and its importance is likely to continue to grow. BASF assumes that by 2030 two-thirds of the growth in global chemical production will come from China.
Cluster risk in Europe, doubts about India, confidence in China
CEO Martin Brudermüller countered the geopolitical risks and concerns about the “risk concentration” of such an investment by referring to the outstanding importance of China in the chemical industry, in which a market-leading company like BASF must participate. With a view to the continuing high importance of the European market for BASF, Brudermüller said that the actual concentration of risk for the group is more in Europe.
However, a year and a half ago, the board of directors put a small project in India on hold with reference to the uncertainty that had grown during the Corona period. With partners, the group wanted to invest up to 4 billion dollars there in the port city of Mudra.
On the other hand, Brudermüller has never expressed any doubts about the flagship project in China, even if the image of China as an economic miracle country has repeatedly cracked. Adhering to the “zero Covid” strategy, for example, has slowed the economy and noticeably shaken confidence in the location. Economic growth is likely to drop to just 3 percent this year. This increases the danger that overcapacities will also arise in the chemical industry.
Last fall showed, among other things, that things are not going according to plan even in centralized China. Because a number of provinces had missed the specified climate targets, they temporarily reduced electricity production at the behest of the central government. As a result, according to information from the Vogel industry service, a quarter of all chemical companies in the country had to limit their production or even temporarily stop it.
Merkel was present at the signature
Brudermüller has pointed out several times that both governments have an interest in the successful implementation of the project. In fact, the planned plant network has a political dimension in addition to its financial dimension. Traditionally, BASF is one of the largest industrial investors from Europe: In eastern China, in Nanjing, the group has been operating a large production site together with the Chinese company Sinopec for almost twenty years. In Zhanjiang, BASF is now the first petrochemical company in China to build and operate a plant on its own – in other words, without a local partner.
The building is considered a symbol of the further opening of China and is used politically accordingly. To underline the importance of good relations, the preliminary agreements were signed in the summer of 2018 in the presence of German Chancellor Angela Merkel and China’s Prime Minister Li Keqiang.
According to BASF, the construction work is on schedule. The first plant for the production of technical plastics is just going into operation. The expansion work is now concentrated on the heart of the new Verbund site, the “Steamcracker”. A large-scale chemical plant in which crude oil is broken down and, after a few intermediate steps, ethylene and propylene are produced: two of the most important basic chemicals of all, precursors for plastics, paints, solvents, pesticides and much more.
The new location should be fully operational by 2030. According to earlier information, he should from then on contribute 4 to 5 billion euros to the group’s revenues.