We see BASF taking a major risk by reaffirming its 2022 outlook today, as the uncertainty factors, especially in Europe, are rising. This week’s inflation and economic growth data in Europe, suggest an economy that is lowing quickly and the confidence levels in Europe are much lower, as we have discussed already this week. BASF and others will likely continue to push prices, but if consumer spending continues to slow, volumes will disappoint and at some point, there will be pushback on both volumes and pricing. Separately, as we mentioned above, we could see another leg up in energy prices as we approach next winter in Europe, especially if there is no resolution to the Ukraine conflict, which seems likely.
While it has been a long time coming, and it is unclear whether COVID hindered or helped, the DuPont materials exit is not a surprise and we noted after the IFF deal that we believed that Ed Breen was not done. During his time at Tyco, Mr. Breen showed a very clear ability to identify better owners for businesses that were lost in a conglomerate structure. We had always anticipated the same with DuPont and the business that is moving to Celanese is one we had expected to move and we had discussed previously. This should be a win for both companies as DuPont begins to look much more like a stable margin specialty chemical company with a portfolio that is becoming more ESG centric – see today's daily – while Celanese now has a large and comprehensive portfolio of polymers that are critical to the transport sector and should be able to drive both revenue and cost synergies if the company manages the integration well.
We will expand on the Olin results and some of the benefits and potential pitfalls of the revised strategy in our Sunday piece as we can draw some comparisons (some good and some bad) from other corporate examples over time. For now, it is working and few would have predicted a $50+ stock for Olin a year ago. Some market fundamentals are working in Olin’s favor, but much of the success is coming from a more radical approach to customer engagement and avoidance of customers generating minimal returns, regardless of what that means for production. So far this is a great first act from the new leadership of Scott Sutton – we will talk about what a second act may need to look like on Sunday.