Western and Russian economic war will have one big winner - China.

"BERLIN -- German chemicals giant BASF SE said it would downsize permanently in Europe, kindling concerns that persistently high energy prices could lead to a deindustrialization of the continent.

High natural-gas prices in Europe in the wake of the sanctions on Russia have left few businesses untouched, leading to factory shutdowns and insolvencies from steel and aluminum to cars and toilet-paper makers.

The chemical industry has been hit particularly hard as it uses gas to both generate power and as feedstock for products that make it into toothpaste, medicines and cars.

Having relied on cheap Russian fossil fuels for decades, European manufacturers have had to adjust quickly to higher energy prices. The fact that these elevated prices are expected to persist longer term has led many to look to boost their presence in U.S. and Asian markets instead.

"The challenging framework conditions in Europe endanger the international competitiveness of European producers and force us to adapt our cost structures as quickly as possible and permanently," BASF Chief Executive Martin Brudermuller said during an earnings call on Wednesday.

"We cannot stick our heads in the sand and hope that this difficult situation will resolve itself on its own," he said.

BASF, one of the world's largest chemicals companies, said that high energy prices are among the main challenges for European producers. Mr. Brudermuller said his company "must act now."

The company will slash costs in Europe by 500 million euros, or $501 million, annually up to 2024, focusing on cost savings in nonproduction units in its operating, service and R&D divisions as well as in its corporate headquarters.

The company said that in the first nine months this year, gas costs at its European sites were about 2.2 billion euros higher than a year earlier.

"The significant increase in natural gas and power prices over the course of this year is putting pressure on chemical value chains," Mr. Brudermuller said.

The BASF share price was up 0.4% Wednesday. The stock is down 25% year-to-date.

Other challenges bedeviling manufacturers in Europe include high labor costs, rigid employment rules and stringent environmental regulations.

"Uncertainties due to the enormous number of regulations planned by the EU are weighing on the chemical industry," Mr. Brudermuller said.

While European gas prices have moderated in recent weeks amid warmer weather and full gas-storage facilities, they remain significantly higher than last year.

Experts and politicians warn that European businesses must plan for the higher prices to be long-lasting.

"We mustn't fool ourselves: the price level is still high, and it won't be the same as before Putin's war," German economy minister Robert Habeck said Tuesday.

Amid the troubles in Europe, BASF and other German industrials have doubled down on their expansion in China, Germany's largest trade partner, despite increased concerns in Berlin about economic dependence on Beijing.

BASF is building a $10 billion production site in Zhanjiang, southern China. The company says the country, the largest and fastest-growing chemicals market in the world, is central to its growth strategy.

The German government has encouraged businesses to maintain their presence in China while also diversifying by increasing their exposure to other markets. German Chancellor Olaf Scholz will visit China next week, the first Group of Seven leader to do so since the start of the Covid-19 pandemic.

BASF said Wednesday that sales revenue in the third quarter increased by 12% over the same period last year.

Net income for the third quarter was 909 million euros, compared with around 1.25 billion euros for the same period a year earlier.

BASF said it was sticking to its 2022 outlook, expecting full-year sales of between 86 billion euros and 89 billion euros." [1]

Western and Russian economic war will have one big winner - China. The US does not have the personnel to take advantage of this.

1. Business News: BASF to Trim Europe Footprint --- Cuts highlight rise in fuel costs that has led industries to focus on growing in U.S., Asia
Kantchev, Georgi. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 27 Oct 2022: B.6.