Chemical company BASF has carved out its coatings business as a standalone company valued at €7.7 billion (£6.7 billion). Private equity firm Carlyle, partnering with Qatar Investment Authority, is acquiring 60% of the new firm, with BASF retaining a 40%.
The division consists of automotive coatings, automotive refinish coatings and surface treatment businesses. The move follows BASF’s $1.15 billion (£855 million) sale of its Brazilian decorative coatings business to Sherwin-Williams in February of this year.
‘Coatings was subject to intense competition from other global players,’ says market analyst Joshua Aguilar at investment research company Morningstar. ‘It’s likely Carlyle was viewed as a better owner,’ he says, adding that BASF’s 40% stake allows it to still benefit at times when the cyclical business is more profitable.
The move is part of a strategic shift initiated in 2024 that combines cost-saving measures and a greater focus on cash generation, with a shift to BASF’s core businesses in chemicals, materials, industrials, and nutrition.
BASF said it would create value by spinning off battery materials, coatings, catalysts and agrochemicals (although it recently said it would retain environmental catalysts and metal solutions for longer).
‘There are buyers willing to pay very good money for several assets that investors have often overlooked at BASF, including its coatings business,’ says Sebastian Bray, head of chemicals research at investment bank Berenberg. ‘The market generally views lack of focus and over-diversification in chemicals as negative,’ notes Aguilar.
Meanwhile, BASF is investing almost €10 billion in an integrated ‘Verbund’ production site in southeast China. Though crucial for its future profitability, ‘that investment carries an elevated level of risk given the China slowdown and market oversupply, especially amid geopolitical tensions,’ according to Aguilar.
Specialities have held up better, but are not immune from economic headwinds … the whole chemical sector is having a tough time
Chemical production in Europe suffered from a loss of cheap Russian natural gas, after the Ukraine invasion. This hurt competitiveness, especially for commodity petrochemicals. In July, BASF declared second-quarter net profits of €79 million, almost 82% lower than the same period in 2024.
China’s ramp-up of petrochemicals is squeezing production in other regions. ‘Commodity chemicals is a very high fixed cost business, so even small changes in production can drastically impact profitability,’ says Seth Goldstein, a chemical equity analyst at Morningstar.
Chemical firms, including BASF, have reacted to lower demand and oversupply by cutting costs. Earlier this year the firm said it was on target to reduce its annual costs by €2.1 billion from 2024 levels by the end of 2026.
Speciality chemicals ‘should survive’
Speciality chemicals tend to be more insulated from supply and demand fluctuations than commodities, and energy contributes less to their costs. Europe retains a substantial footprint, supplying consumer goods and the automotive sector. ‘Within speciality chemicals, European industry should be able to survive the downturn. Then, as we see demand normalised, they should bounce back,’ says Goldstein.
The downturn in chemicals is exacerbated by global trade tensions. The biggest impact is not from US tariffs directly, but from consumer goods companies considering shifts in production and unsure about demand for exports to the US. ‘Uncertainty is causing many of the customers of major chemical companies to reduce production,’ Goldstein says. There remains long-term investment in capacity expansion and in R&D to develop new products in speciality chemicals, he adds.
‘Specialities have held up better, but are not immune from economic headwinds,’ says Bray. ‘Some specialities are seeing higher levels of competition than in the past from China, such as engineering polymers, but overall the whole chemical sector is having a tough time.’
Bray reckons a substantial improvement may not happen until the late 2020s. ‘Tariffs are weighing on demand for industrial goods including chemicals. If demand grows more slowly, it’ll take longer to absorb available capacity,’ he warns.
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