Good morning, everyone. Welcome to BASF's conference call for the third quarter of 2026. Today's presentation is being recorded. All participants will be in listen-only mode throughout. The presentation will be followed by a question- and- answer session. Today's presentation contains forward-looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward-looking statements are not guarantees of the future developments and results outlined therein.
These are dependent on a number of factors. They involve various risks and uncertainties, and they are based on assumptions that may not prove to be accurate. BASF does not assume any obligation to update the forward-looking statements contained in this presentation, above and beyond the legal requirements. With me on the call today are CEO Markus Kamieth and CFO Dirk Elvermann. Please be aware that we have already posted the speech on our website at basf.com/q32026. Now, I would like to hand over to Markus.
Thank you, Steffi, and good morning, everyone. Dirk and I are pleased to welcome you to today's conference call. Before we start the discussion of our Q3 results, I would like to address the possible combination of BASF and Evonik upfront. With our Winning Ways strategy, we strive to maximize the value of our standalone businesses and at the same time strengthen and grow our core businesses, both organically as well as through value-accretive acquisitions. A potential combination with Evonik would be a logical and meaningful step in this direction. The timing is right, not only for BASF but also for the chemical industry.
Consolidation in Europe is underway, and BASF is well-positioned to drive and shape it. From our perspective, the strategic and financial logic is compelling. The portfolios and strengths of both companies complement each other very well. A combination could create an even more competitive and more resilient global player, building on the world's most advanced Verbund platform of BASF. Let me also be very clear. Our commitment to financial discipline and our capital allocation framework remains unchanged.
This includes shareholder distributions of at least EUR 12 billion between 2025 and 2028. Let me underline one thing again. Acquisitions are a could do, not a must do in our strategy. We will only pursue a potential transaction if it is value accretive for our shareholders. We will not overpay. Please understand that beyond these general remarks, we will not comment further on this topic on today's call. Let me now continue with three key takeaways regarding our third quarter results. First, BASF delivered another strong quarter with considerable growth in EBITDA before special items driven by all core businesses.
Second, disciplined capital allocation enabled us to further reduce net debt, strengthen our balance sheet, and continue our share buybacks. Third, the strong year-to-date performance of our core businesses gives us confidence to narrow our forecast range for EBITDA before special items upward. Now let me walk you through the developments in the third quarter in more detail. I will first explain the key drivers of sales performance in our core businesses. We have included the past three quarters to illustrate how dynamics have evolved compared with the corresponding prior year quarters.
In the second quarter of 2026, following the escalation of the conflict in the Middle East, we successfully increased prices, particularly in our upstream businesses. The positive momentum continued in the third quarter and was driven by price increases in all four core segments. During the first nine months of 2026, we also delivered volume growth in all core segments. This was supported by the successful ramp-up of our new Verbund site in China and by our resilient integrated production network and local-for-local strategy.
Volume growth accelerated in the second quarter of 2026, in part due to customers securing supply in the midst of heightened geopolitical uncertainty. In the third quarter, we continued to capture solid volume growth across our core businesses, with the strongest contributions coming from the Chemicals and Nutrition & Care segments. Currency headwinds eased over the recent quarters and turned into a slight tailwind in the third quarter. Let's take a look at the regional volume and price developments in our core businesses compared with the prior year quarter.
Following the strong momentum since the first quarter of 2026, we continued to deliver considerable volume growth in Greater China, supported by our Zhanjiang Verbund site. Driven by the ongoing Middle East conflict, significantly higher prices in Greater China provided additional support, particularly in the upstream businesses. In Asia-Pacific, excluding Greater China, we also delivered strong volume growth and achieved considerable price increases. In Europe, sales grew considerably on account of significantly higher prices.
We increased prices in all core segments, particularly in Chemicals and Materials. Volumes were broadly stable as higher volumes in Nutrition & Care partially offset slightly lower volumes in other core segments. In North America, we achieved strong price increases and solid volume growth. Prices rose, particularly in the upstream businesses, while volume growth was mainly driven by the Chemicals and Nutrition & Care segments. Moving on to the earnings bridge.
EBITDA before special items rose by 15% to EUR 1.6 billion, driven by the strong performance across all core businesses. Higher specific margins, solid volume growth, and lower cash fixed costs were the main drivers for the earnings increase in the core. Our restructuring efforts are clearly visible in our P&L. By contrast, EBITDA before special items in the Surface Technologies segment was considerably below the level of the prior year quarter. This was primarily due to the earnings decline in Metivo, previously known as Environmental Catalyst and Metal Solutions, or ECMS.
The main reason was a positive one-off effect resulting from government grants in the prior year quarter, which were primarily related to prior periods. I will provide more details on the earnings development in the Agricultural Solutions business on the next slide. EBITDA before special items and other declined compared with the prior year period, among other things, due to higher additions to bonus provisions. Let's turn to Agricultural Solutions. In Q3 2026, a quarter with typically low seasonal activity, sales declined by almost 20% to EUR 1.4 billion.
The main driver was considerably lower volumes, resulting in part from the challenging market environment in South America. Sales brought forward into the second quarter ahead of the ERP migration in South America also contributed to the decline. The rollout in the region has now been completed. Pricing was mainly affected by high competitive pressure in South America. As a result, EBITDA before special items declined compared with the prior year quarter. Lower fixed costs partially offset the decline. For the fourth quarter of 2026, we expect the usual seasonal strengthening compared with the third quarter.
Portfolio management plays a significant role in the execution of our Winning Ways strategy. In line with our capital allocation framework, we continue to generate considerable cash inflows from portfolio measures. At the same time, we are sharpening the focus of our core portfolio and strengthening its strategic coherence. Let me briefly highlight our achievements in 2026. We have sold Harbour Energy shares and generated cash inflows of around EUR 1.3 billion to date. We still hold around 16% of the outstanding Harbour Energy shares with voting rights and will sell them over time, always being mindful of value.
We divested the decorative paints business in 2025 and completed the transaction with Carlyle in 2026 at a combined multiple of 13 times, resulting in net cash inflows of more than EUR 6 billion. By holding a 40% equity stake in Surventis, we will continue to participate in the future value creation of the coatings business. We are also working on further portfolio measures. In early October, the divestment of Stahl Group's specialty coatings business to Henkel led to a cash inflow of more than EUR 250 million via our indirect participation in Stahl Group.
This amount will be recognized in BASF Group financial statements in Q4 2026. The preparations for the planned IPO of Agricultural Solutions are on track, giving us confidence that the business will be IPO ready by mid-2027. The transition of the global business into separate legal entities with an industry-specific ERP system is already largely completed. With that, I hand over to Dirk.
Thanks, Markus. Good morning, everybody. Let's now take a look at the key financial figures of BASF Group in the first nine months of 2026 compared with the prior year period. At EUR 6.4 billion, EBITDA before special items increased by more than EUR 900 million compared with the prior year period. All core businesses contributed, with the highest contributions coming from materials and industrial solutions. Cash fixed cost of BASF Group declined by around 3% to EUR 11.8 billion. This is the result of the ongoing restructuring efforts, particularly in our core businesses.
Net income came in at EUR 5.2 billion, including the disposal gain of EUR 3.5 billion after tax from the coatings transaction with Carlyle. Free cash flow was EUR -1 billion. Considerably lower payments made for property, plant, and equipment, and intangible assets partly offset the decline in cash flows from operating activities. We are making great progress streamlining our global organization. As you can see on this chart, in the first nine months of 2026, we reduced more than twice as many positions as in all of 2025.
Since January 2024, we have reduced the number of employees by around 8,600. Please note that this figure excludes both the reduction results from the divestitures and the workforce buildup associated with our Zhanjiang Verbund site. I will now explain the cash flow development in the first nine months of 2026 in more detail. Cash flows from operating activities declined to EUR 823 million, mainly due to the EUR 1.5 billion higher net working capital requirements. This resulted primarily from two effects. On the one hand side, higher sales led to higher trade accounts receivable. On the other hand, capital tied up in inventories increased as a result of higher raw material prices.
In addition, cash flows from operating activities were burdened by spending of around EUR 570 million related to the ongoing transformation of BASF Group. In particular, this related to cash-effective restructuring measures and the introduction of the new ERP system needed in Agricultural Solutions and the core businesses. We continue to maintain a strict focus on net working capital management, as reflected in the two KPIs for our core businesses. Compared with the prior year period, average days of inventories valued declined by 6%, and average days of sales outstanding decreased by 3%.
This demonstrates our continued discipline in managing working capital efficiently. Payments made for property, plant, and equipment and intangible assets decreased by around EUR 980 million to EUR 1.9 billion. Free cash flow thus came in at EUR -1 billion compared with around EUR -870 million in the prior year period. Our full year free cash flow forecast is unchanged. In Q4, our operating divisions are expected to collect more cash from outstanding receivables than last year. However, the inventory reduction will largely depend on the price levels.
For the full year 2026, we now expect payments made for property, plant and equipment, and intangible assets to come in clearly below EUR 3 billion, compared with the forecast of EUR 3.4 billion provided in February 2026. In line with our priorities of our capital allocation framework, we continue to deleverage and further strengthen our balance sheet. Compared with the end of September 2025, we have reduced net debt by 20%. We have used a significant portion of portfolio proceeds to repay maturing financial debt and to redeem bonds and loans ahead of their maturities. We expect net debt to reach around EUR 15 billion by year-end 2026.
The strengthening of our balance sheet supports our single A credit rating. This Monday, Fitch confirmed our single A credit rating with a stable outlook. We also remain fully committed to attractive shareholder distributions via dividends and share buybacks. For 2024 and 2025, we paid total dividends of around EUR 4 billion to shareholders of BASF SE. Between November 25 and October 23, 2026, we bought back shares for around EUR 1.9 billion. This amount is part of the overall program of at least EUR 4 billion that we announced in September 2024. Despite the continued execution of our share buyback program, our equity ratio increased by almost 3 percentage points to 47.2%. This underscores our commitment to maintaining a strong financial profile. With that, back to you, Markus.
Yeah, thanks, Dirk. As we now have greater visibility regarding the expected earnings development, we are able to provide a more specific forecast range for BASF Group's EBITDA before special items for 2026. We expect EBITDA before special items of between EUR 7.4 billion and EUR 7.8 billion. Compared with our previous forecast, we have raised the lower end of the range and slightly increased the upper end.
Given the continuing uncertainty surrounding further geopolitical and global economic developments and their impact on oil and gas prices in particular, we maintain the forecast range for the free cash flow of between EUR 1.5 billion and EUR 2.3 billion. In view of this uncertainty, we are also leaving the macroeconomic assumptions published in July unchanged. Now, Dirk and I are glad to answer your questions.
I would like to open the call for your questions. If you wish to ask a question, please press star and then enter 11 on your telephone. For the best sound quality, we kindly ask you to be sure to unmute your phone and use your headset when asking your questions. Please limit your questions to only two at a time so that everybody has a chance to ask their questions. We will start with the questions from Christian Faitz, Kepler Cheuvreux. We have then Katie Richards on the list and then Peter Spengler. But now first, Christian Faitz, Kepler Cheuvreux. Please go ahead.
Yes. Thank you. Good morning, Markus, Dirk, Stefanie, and team. Two questions, please. Actually on special items. First of all, what was the nature of the legal dispute that led to special items of almost EUR 100 million in Care Chemicals? The second question is, can you elucidate the EUR 318 million Monomers impairment? Which assets were impaired? Thanks very much.
Christian, good morning. I can take these two questions. First, the claim in Care Chemicals, this was a liability claim going on for a longer period of time. Was not so prominent, but was dealt with accordingly and is now finally settled. So it is a final settlement in a high double-digit million amount. The impairment that we did in Monomers is related to the HMD plant that is embedded in the site in Chalampé. This is part of the PA-66 production site there, and we figured after a couple of years now that demand is not coming as expected.
At the same time, the competition, particularly here with imports from China, is very high, so that the margin expectations that we originally planned will not hold true. Therefore, this impairment was due. At the same time, let me say that, of course, the production and also the market activities are continuing there, and we are still confident that we will provide a competitive business out of Chalampé. It's the biggest PA-66 site in Europe. But for the time being, we had to take this impairment, as you have seen.
Thanks very much, Dirk.
Now we move on to Katie Richards, Barclays. Please go ahead.
Hi. Good morning. Thank you for taking my question. One question on the portfolio measures, please. Are these just a reference to completed actions like Coatings and Stahl, or should investors expect additional divestments or restructuring from here? My second question, please, is on the Critical Chemicals Alliance recommendations a couple of weeks ago. I noticed that BASF was one of the companies that opposed the proposal to make safeguard measures easier to adopt. I think this was Article VIII, I believe. Could you explain why you opposed this proposal and what an ideal solution to the increased competition Europe is facing would be in your opinion?
Yeah. Thanks, Katie. First question is rather straightforward. We have only reported today on completed, or let's say, well-announced transactions, for example, the IPO readiness of our Ag business. I would expect more, let's say, active portfolio management also, going forward. We are also still considering, and we have also partially announced our intent to sell, I would say, smaller parts of our portfolio, where we are looking for better owners and trying to create value also in our core business. But these are all, I would say from a size perspective, rather smaller, I would say, portfolio optimization efforts. Do not expect anything very significant.
But we are still in an ongoing process to optimize the core portfolio, and this is, I would say, ongoing fitness program for BASF Group. Second question is more complex to answer, of course, and I will try to keep this a rather high-level answer. First of all, I am of the opinion that the current toolbox of trade defense instruments of the European Union is not as bad as it is utilized right now. So we are, first of all, always pledging that we use the tools that the European Union has available to the best possible extent.
This includes, for example, a more effective and efficient use of anti-dumping measures, for example. And we have also, let's say, as an industry and also as BASF, taken a look at safeguard measures, and at least we believe that the safeguard instrument as it is defined right now, would be sufficient to, let's say, work against some of the effects. So I would say we are taking a somewhat balanced approach towards trade defense instruments.
We are, first of all, pledging to use the existing tools as effectively and as sharply as possible, before creating new ones or adapting or going into strong political deliberations of creating additional instruments. And that is probably where this position comes from. I cannot now specifically talk about the comment you mentioned in the specific document.
Right. Thank you.
The next speaker will be Peter Spengler from DZ Bank. We will then have Tony Jones and then Jaideep Pandya. Now Peter Spengler, please.
Yes. Good morning. Thank you for taking my two questions. First is on China. Regarding the new Zhanjiang Verbund site, did the site already achieve a positive EBITDA in Q3? How are the ongoing ramp-up costs and the big domestic margin environment in China currently impacting your chemical segment's fixed costs? The second question is on working capital free cash flow. You raised the guidance for the EBITDA, but the free cash flow guidance was unchanged. What is driving the massive EUR 4.1 billion net working capital drag in the first nine months, and why are you confident this drag will reverse in Q4 to meet the full-year cash targets? Thank you.
Yeah. Thanks, Peter. I'll take the first question on Zhanjiang. I don't have the specific number in my head, but if I remember correctly, we had in Q3 a slightly negative EBITDA for Zhanjiang, and that's a composition of positive and negative months. It was slightly below the zero line. But as you can imagine, volatility in China as in the rest of the world on some commodity product is quite high. We've seen pretty significant swings in margins also from some, let's say, cracker downstream product. It is somewhat volatile month over month, but overall Q3 we came out slightly negative.
So we stick to our overall year guidance, where we said we will probably end up in the area of EUR -100 million, roughly EBITDA on the Zhanjiang site all in. That includes, of course, still relatively substantial startup-related costs that we had, especially in the first half of the year. I cannot now further dissect this in terms of fixed cost ramp-up versus margin expectations for you. I apologize for this, but that is still the guidance holds.
We're very happy with the operational performance of the Zhanjiang site. It runs at very high utilizations. The flexibility of the assets are tremendous. Operationally, this is really good, but we are of course operating not only in a very difficult, but also in a volatile market environment. We are so far on track with what we have planned for Zhanjiang. Then I hand over for the cash flow question to you, Dirk.
Yes, Peter, to the cash flow question. Let's first see that we have generated EUR 1.1 billion of operating cash flow in the third quarter of 2026. This is by and large EUR 250 million lower than last year. The working capital effect is as follows. Inventories are currently dragging us by roughly EUR 500 million. This is solely due to higher feedstock prices. Accounts receivable are also higher by the end of Q3. We had a bit of an unusual pattern. We had strong sales in September, which were bringing the accounts receivable up. For this, I am very confident that we now have a strong cash collection quarter in the fourth quarter of the year.
All businesses are very much committed to this aspect. Inventories, it largely depends on how the feedstock prices go from here. You all saw the spiking oil prices again, oil and gas prices. Those are obviously having a big effect. The cash that is currently tied in working capital is certainly not lost, but would be collected later. To sum that up, I am very confident that we will have a strong cash collection fourth quarter, and this is why we can uphold, maintain our guidance for free cash flow.
To which extent and where in the range we will be and whether we will hit the range, certainly mostly depends on the feedstock prices. On the CapEx side, if we now relate to free cash flow, I can certainly say that we are very disciplined and that we, again, brought the investment amount down. So we will, this year, probably end between EUR 2.8 billion and EUR 2.9 billion in CapEx, which will also help us with the free cash flow generation.
Thank you very much.
We move on to Tony Jones, Rothschild & Co, please.
Hi. Good morning, everybody. Thank you for taking my questions. I have two. One for Dirk, I think, and then one for Markus. Firstly, thank you for the comments on value creation, but can you confirm how you define this? Is it earnings accretion, cash flow per share for distributions, or is it positive returns above your cost of capital? Then my second question, can I tempt you into an early look at 2027, based on your budgeting and planning? What are your early thoughts on the year? Thank you.
I start with the second question because it's rather easy, because we haven't done our planning for 2027 yet, Tony. So, I'm also curious to hear from all our business leaders what they see. I would expect that, again, 2027, no magic will happen on January 1st. So the momentum that we are seeing right now in the economies will move into 2027. None of the big geopolitical, let's say, challenges will be solved on January 1st. So we are seeing a sustainment of the rather challenging geopolitical situation. However, what is of course encouraging that quite a number of leading indicators recently have ticked up.
When you look at PMI, when you look at, let's say, industry barometers, especially here in Europe, you see some positive trends. So leading indicators look rather more positive than what we have seen three months ago. I would expect a certain positive momentum now for the rest of the year, especially in industrial sectors, but of course, coming from a low base. As I've said many times, industrial activity in all major regions has been weak in 2026, and construction as well.
So a slight improvement in leading indicators has not yet translated into real stronger actual figures. But I would say there is some positive momentum underlying, and that's why I approach 2027 with some confidence that at least things will not get worse, but they might get a little bit better. But when it comes to planning, I can also tell you what I tell every business leader in BASF. We plan our 2027, again, based on predominantly self-help measures that would help us to achieve profitability improvements.
We have talked here also about our CoreShift program, which will kick into gear in 2027, and you have seen also today the results of our restructuring measures. So this will be the core of our 2027 outlook, and then the market will hopefully give us some additional opportunities to have volume growth and maybe even margin expansion. But this is too early to tell right now. Dirk, on value creation?
Yeah. Tony, on the value accretion question, a broad question, also a broad answer. Of course, we are looking in all of the above. You know our typical trinity KPIs or cash earnings and return on capital employed. This will also apply here, and we take a balanced approach. We are not putting more priority to one of those, but return on capital employed longer term, and always earnings and cash in a balanced approach.
Thank you, gentlemen. That's very helpful.
Now we have Jaideep Pandya On Field Research. We will then have Sebastian Bray, followed by James Hooper. But now first, Jaideep Pandya.
Thank you. First question really is on the upstream side of things. Where margins sit today, when you compare that with maybe a 10-year historical average or to the peak of 2022, where are margins today? Are we at mid-cycle? Are we still below mid-cycle? Because I guess to sort of circle Tony's question, the big question mark for 2027 or 2028 is, will we see margins going down again because of supply normalization?
The second question, I appreciate your comments in the beginning of the call, so I will not ask about Evonik, but just want to be asking, if that option is not available, in the light of IPO and Ag, are you still going to pursue other acquisitions to make sure the size of BASF stays as it is, or if that option does not happen, we go back to what is as a standalone BASF outside of Ag. Thank you so much.
Yeah, thanks, Jaideep. Maybe starting with the margin question. I always caution everybody to oversimplify the chemical industry in its breadth, because also the times where the entire chemical or petrochemical industry swings in one cycle up and down, these times are long gone. So we have various different cycles. But I still want to try to manage your rightful curiosity a little bit. If we look across the BASF portfolio and our main value chains, and we sum all of this up, I would say we are certainly now sitting at significantly above the trough and the lowest point where we were in the margin cycle.
But we are still on our way towards what we would consider mid-cycle margins, especially if you look at a 10-year horizon. So we are not there yet. Whether it is going to improve or not, I already commented on with Tony's question, we will see. But for sure, we are not, let us say, in territory that we would consider normalized margins or mid-cycle margins across the entire portfolio. In individual products, that might be the case, and we have seen even some margin spikes in the second quarter where we were probably a little bit up above average.
But overall, across the overall portfolio, think about it, we are out of the trough, and we are on our way towards mid-cycle. That is how I would describe it, maybe. So there is certainly some fantasy on my side that 2027 could be better than this year, but there is also room for things to, again, fall back somewhat, especially if you look at the entire year 2026, including the stronger second quarter when it comes to margins.
I would say that is why I believe upsides, downsides on the margin side for 2027 right now are somewhat balanced, but I still have some optimism in my belly that 2027 could positively surprise me. On the acquisition question, I continue to try to be as outspoken as I can about this, that in general, acquisitions are part of our thinking when it comes to strengthening and growing the core along our Winning Ways strategy logic. I know this announcement or this leak, I have to say, a few weeks ago has surprised quite a lot of people, but I can only refer this back to 2024 because we said this all along, that M&A, value accretive M&A, we always call it, is part of the playbook to strengthening and growing the core.
But I also always say that this is an option and not a must-do. We have had a very diligent and very, I would say also disciplined process to select what is the right timing and also what is the right target. We have obviously come to the conclusion that Evonik is our preferred target at this point in time. We are committed and obviously engaged in this option right now. If this, for whatever reason, doesn't materialize, then we are not forced to do the next acquisition. That's why I said also today, from my perspective, the Winning Ways strategy as it stands today and with the measures we have defined, works also without an acquisition.
We're not forced to do it. But we will continue to look for opportunities in a consolidating chemical industry to strengthen this core business that we have. But we are neither forced by size or by, let's say, achieving a certain KPI or by timing. We will stay very selective and, believe us, we will stay also very disciplined when it comes to this, because every acquisition has to, at the end of the day, fit into the strategy envelope of our Winning Ways strategy and the capital allocation envelope that we have promised to our shareholders. In short, we will not do stupid stuff just to make an acquisition.
Thank you for the clarity. Thank you.
Okay, we move on to Sebastian Bray, Berenberg. Please go ahead.
Hello, good morning, and thank you for taking my questions. My first one is on the moving parts for 2027, in particular, energy costs and China plant. Are energy costs a relevant consideration anymore for BASF, or have the LNG contracts effectively removed this? Is China flat or up next year? My second question is on Agricultural. I appreciate I run the risk of reading too much into one quarter, but it did not look like conditions were particularly bad in Q3, leaving aside bits and pieces of El Niño-related weather. Why were prices down, and how do you feel about this business at current corn and soybean prices moving into 2027? Thank you.
Thanks, Sebastian. I will take the first question, and Dirk, maybe the ag question. Moving parts. Energy costs still relevant for BASF, so we are still a big chemical company with significant energy bills. I think overall we are looking at roughly 5% of our total cost is energy cost related. This is a pretty significant part. Of course, we are exposed to global commodity pricing when it comes to energy vectors. That relates to electricity to a minor extent, but to a larger extent, in particular to gas, which is our, by far, biggest energy carrier and also a considerable feedstock, of course, as you know.
Our LNG contracts, and I would say also our general sourcing strategy for natural gas, including also a hedging strategy, that is part of, I would say, I do not want to say competitive advantage because it sounds too unique, but I would say that is part of the magic that BASF does also. Our two significant natural gas contracts that we have published this year are part of that toolbox. Handling the sourcing and the mitigation of volatility on the natural gas side is part of what we do as BASF.
We do not want to disclose too much of what we are exactly doing there, but believe us, it gets a lot of attention and through our energy trading capabilities as well as our significant sourcing position, we try to optimize our overall energy costs. I think this year again showed that we have been pretty successful in an extremely difficult market, of course, especially for natural gas.
We consider this as a little bit part of the magic that we do behind the scenes, and we feel pretty good about the machine that we run there. I know it is a bit of an evasive answer, but yes, it is a concern, energy prices and gas prices. But we are confident that we are better equipped than most other companies handling this situation. Dirk, Ag?
Yeah. Hi, Sebastian. Let me walk you through the Ag piece a bit. First of all, the third quarter is typically the weakest quarter due to the seasonal pattern. We all know that. In this weak Q3 environment, what has happened? The biggest downside driver was indeed volumes. Part was explained by this preponement due to the ERP migration. Markus addressed this also in the speech. This was not the only reason. In South America, but also in Europe and also in Asia, you had adverse weather conditions, which were hitting everybody, but this led to some lower volumes as well. North America was also lower in volumes than previous year's quarter, also due to weather conditions to a certain extent.
But you see, there was no great volume demand in the third quarter. Prices also declined. You see that the pricing power in this market is currently also not so great. These two facts together brought also this weak result. What does this mean now? Most importantly for Q4, because Q4 is again a strong agricultural quarter. For Q4 2026, we expect, also addressed in the speech, the seasonal strengthening versus Q3. This is very clear. If I compare what we're expecting for Q4 with last year, I would say we should come in by and large, in the same order of magnitude. The guidance holds that we will be lower than last year on a full year's basis. But for Q4, we should see now the resumption of performance, and I think Q4 2025, by and large—
By and large.
—is a good benchmark. One more thing, maybe. FX effects. We saw now that the Brazilian real is also after the elections, this is also now going weaker. The positive FX effects that we saw for quite a while now in this business will also be weaker. There are some negative signals. But if we talk to the team, the team is confident that after this system change now, they are in good shape to perform a solid fourth quarter 2026.
Steffi just reminded me, Sebastian, that I have not answered your China questions on moving parts on China. I would say very difficult to comment on for 2027, what are the moving parts. But for sure, we are looking still at a market that is growing significantly this year. I would expect China chemical market to come out in line with roughly GDP, so 4%-5% up. Not the 7% or 8% that we have seen in prior years, but still extremely significant on that strong base. There is growth in China, volume growth in China. However, this is of course driven a lot by the export strength of the Chinese economy and still on top of a very weak construction sector.
Overall, I think there is the expectation that China also next year will show significant growth for chemicals, hopefully with a more balanced export to domestic demand mix, and that is at least a normalization that I would expect somewhat. Overall, a further, let us say, step in the direction of normalizing supply-demand for chemicals, because we talked here in this call also a lot about the anti-involution measures of the government. I think we are seeing that there is no quick fix on this, but things are moving also in China that we expect supply-demand to normalize. This also means that we will see continued progress on profitability development also for our Zhanjiang site, in line with a more balanced market and hopefully also less volatility on the feedstock side.
Thank you. That is helpful.
Okay, we now have James Hooper, Bernstein, and then Chetan Udeshi and Laurent Favre will follow. But now, James, please go ahead.
Hi. Good morning, and thank you very much for taking my questions. First question is, following on from the Agricultural comments about Q4, are you able to give us a little bit more commentary about Q4, across the other divisions? Also, just to note, it is quite a wide guide for your seasonally smallest quarter of the year. So what needs to happen to reach the top and the bottom of the guide? My second question is a little bit about volume trajectory and product availability. It seems that the industry broadly has been more resilient than some had feared a few months ago. What do you think would need to happen geopolitically for supply availability to be worse, or do you think the industry will manage better? Thank you.
James, I can maybe start with the first one. The guidance range is halved now, compared to what we had before. So I hope this is already a bit helpful. If I take this from the segment levels, I would say the Chemicals segment is expected above the previous year's quarter with the momentum that we see going into the fourth quarter. Materials, I would rather expect around the level of the previous year's quarter. We saw a normalization of the business already in the third quarter, and I think this is continuing in the fourth quarter.
Industrial Solutions, I would expect above previous year's quarter, also very much on the back of tremendous cost saving and efficiency measures that are now sustaining. Nutrition & Care, likewise, also expect above the previous year's quarter, and probably driven by Care Chemicals for the most part. Surface Technologies, as we guided, will be below the level of the previous year quarter in line with the full year's guidance that we have provided, and Agricultural Solutions, I just commented on. So this all together gives you hopefully quite a good picture, and this fits well into the narrowed guidance range.
Also, James, first of all, I sense a little bit that you feel that the guidance range is still high for fourth quarter. Let me just remind you, oil prices in October alone went up by more than 10%, and that was not necessarily expected. So we still see significant volatility on feedstock markets, energy markets, geopolitical situation. There are rumors that the Middle Eastern conflict could flare up in the next days after the midterm elections.
All of this stuff is out there, so I do not want to defend now this, but it is also very difficult, even in this day and age, to forecast even three months out and to have a point, like a very super clear preciseness in forecasting. So again, we feel that it is an appropriate range still, but you might disagree. But James, I have to ask, your second question, I did not quite get it. Maybe you can rephrase it a bit so I can better answer this.
Yeah. No, thank you, Markus. It is more about a product availability that we have been hearing that it has become easier, and I think you referenced it in your—
Yeah.
—speech. It is a bit more about how you see if we do have the disruption that you mentioned in your last answer about how you think the industry will manage this or better, or what you think might make it, might change the conditions back to what we saw in Q2.
No, I do not think you can compare Q4 with Q2 too much. The common denominator is sharply increasing energy prices. Now oil and gas prices are going up again after a dip in the summer months. July, I think, was the lowest. But then, the difference is that in Q2, of course, nobody was prepared for the situation that emerged due to the Strait of Hormuz closure and ineffectiveness of supply chains. There were shortages left and right, both feedstock, but as well as product streams had to be rerouted. So there was a certain tightness. You saw all chemical companies outside of Asia have benefited somewhat from this ineffectiveness because there was pricing opportunity.
You saw also, let us say substantial additional volume coming in. You saw that also in our numbers today, where we showed you volume growth in Q2. Now, Q4 is very different because you have increasing energy cost again. But Q4, not only seasonally, is a lower demand quarter in general for most industries, but you also have supply chains that have accommodated, so to say, the different situation. So in general, I wouldn't expect as many tight situation supply disruptions in Q4 as we have seen in Q2. This puts also a bit of pressure now on all chemical companies in the industry because Q4 could be a quarter where lower demand hits higher energy costs.
So that's why we are a bit cautious also on Q4. Somebody in the call indicated that Q4 looks like a lower quarter, so to say, according to expectations, but we want to be cautious also here because there's a lot of dynamic in the market. Q4 is always a tough one to forecast, but I wouldn't draw too many parallels now between Q4 and Q2. Very different dynamic. Well-supplied markets, typically, but as I said, also some positive momentum on the demand side that is also giving us some confidence that Q4 in our core businesses and also in Ag will be strong enough.
Thank you.
Now we have Chetan Udeshi, JP Morgan, and then final questions from Laurent Favre afterwards. But first, Chetan Udeshi.
Yeah, hi. Thanks for taking my question. I had two, both related in a way. Dirk, I think you mentioned something around EUR 500 million of cash costs for restructuring so far this year. I'm just curious, given that you've taken another big provision in Q3, how will that number evolve next year? Will it be as significant as this year, or do you expect a big change? Related to that, your CapEx, you said EUR 2.8 billion-EUR 2.9 billion, so that's, let's say, roughly a EUR 500 million cut from your previous guide. Is this a new baseline or are you just adjusting the phasing such that your five-year target doesn't change? In other words, this is more a postponement into outer years rather than proper structural reduction. Thank you very much.
Yeah, Chetan. First, thanks for the two questions. On the first one, the restructuring cost, part of the transformation that we are currently undergoing, they will also be significant next year. We are now in the midst of execution, and with that, the special items restructuring costs also for next year will be in a comparable or slightly higher number. This is my current expectation. On CapEx, we just guided you below the EUR 3 billion for this year. We maintain our EUR 13 billion for the four years period, which is, I think, 20% lower than the last four years period. So we maintain this. But you see from this year's performance that we rather undercut the CapEx than overrun it.
Let me also add to this maybe one color from my side. I think we have also, starting in 2024, put a lot of emphasis on running the company at lower CapEx budgets because we said we are well invested and our focus will be to utilize existing capacity that we have built over the last years. We have also now gained confidence because we are reaching new territories on how you can run BASF at much lower CapEx levels than we also were used to ourselves in the past.
So if you account for inflation, we are now at very, very low CapEx levels, and we believe this is to at least to a large extent sustainable, at least over a number of years. So this is not a, let's say, we stop everything in 2026 and then we have to let it go again in 2027 exercise. This is really now bringing BASF into a, let's say, capital discipline fitness regime, and we think we can sustain that level for quite some time. So this is a different BASF in terms of capital discipline than what we've had before the Winning Ways strategy.
Got it. Thank you.
I just see that Laurent Favre is no longer on the line, this brings us to the end of today's conference call. Let me take this opportunity to draw your attention to our Capital Markets Day in Ludwigshafen on November 24. The event will include a keynote by Markus and Dirk, as well as a comprehensive presentation of the Agricultural Solutions business by Livio Tedeschi and his fellow management board members.
A few days later, on December 3, we will host a dinner with BASF Board members in London. We will send out dinner invitations to investors and analysts in due course. Should you have any further questions regarding our Q3 reporting, please do not hesitate to contact a member of the BASF IR team. Thank you for joining us today, and goodbye for now.