BASF - the world's largest chemical company by sales - is slashing its production, following a 'massive decline in demand' for its products.

The company will temporarily shut down 80 of its plants worldwide, and cut production at approximately 100 others. In total, the cuts and closures represent 20 to 25 per cent of the company's global production capacity. Around 20,000 of BASF's 95,000 global workforce will be affected by shorter working hours - a quarter of those at the company's main Ludwigshafen site.

BASF had already cut production of some products - for example, in September announcing it would cut European polystyrene production. But market conditions have continued to deteriorate, even since the company announced its third quarter financial results on 30 October.

'Since then, customer demand in key markets has declined significantly,' said Jürgen Hambrecht, Chairman of the Board at BASF. 'In particular, customers in the automotive industry have cancelled orders at short notice.' The company has also been hit by falling demand from they key construction and textiles industries. 'BASF is preparing for tough times,' said Hambrecht, adding that the company's annual earnings will drop below 2007 levels.

BASF is just the latest company to decide to idle plants as demand slumps. US chemicals companies Dow and LyondellBassell have temporarily closed plants, as has UK-based Ineos.

Paul Hodges, chairman of chemical industry consultancy International eChem, says he is surprised that BASF have waited so long before cutting back production. 'If you look at the key sectors - automotive and housing - they've been in very bad times for over a year - and things are only getting worse.'

With oil prices rising, BASF's customers had bought ahead, acquiring high levels of stock, says Hodges. As oil prices - and consumer demand - have plummeted, these companies are now slashing their inventories, and have simply stopped buying. 'BASF are experiencing that stomach-churning moment where, for a period, demand seems to stop,' Hodges says.

BASF says the cutbacks are expected to last until January 2009, and Hodges agrees that demand should begin to pick up at that time, as companies look to re-stock - although slow economic conditions mean demand could remain 20 per cent below that of recent years.

James Mitchell Crow

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