1

Risiko-Management im Einkauf der BASFanhand des Beispiels der Seltenen Erden

Filipe Fünfgeld

Head of Global Procurement Inorganics

Oktober 2011

Lynas Corp. - Mt. Weld Mine

2

Aromatics

InorganicsBuilding Blocks

Metals

C1 Products

Energy

AdditivesPlastics

ConstructionChemicals

IndustrialChemicals

Renewables

> 20,000 Products> 6,000 Suppliers

€ 22 billion

Basic products(large bulk volume)

Chemicals(containers - small bottles)

All business units All sitesPerformanceChemicals

BASF´s Global Procurement Raw MaterialsWhat are we buying?

33

BASF Risk Managementin Procurement

BASFRiskMgt. Price

VolatilityRisk

SingleSource

Risk

CriticalRaw Mat

Risk

ContractRisk

SustainabilityRisk

SLS Risk EHS Risk Reach RiskCompliance Risk

44

Quantitative criteria

Company concentration

Non - Substitutability

Qualitative criteria

Protectionism

Future technologies

Country risk

Supply Risk - Index for Raw Materials(max score 9) – Example Rare Earths

Country concentration2

3

5

6

7

Criticality: high

high / problematic middle / moderate low / relaxed

Supply / Demand (current & trend)4

1

Critical Raw Materials –Early Warning Rare Earths

Action required: RETF was set up in September 2010

Due date: Solution until June 2011

5Modified from: USGS, IMOCA, Lynas Corporation Ltd, Laurentian Bank

China(production)

ROW(production)

To

nn

es

of

RE

O

US $ 70

US $ 30

1970 1980 1990 2000 2010

Molycorp / LynasCorp projected

light REEproduction

180,000

120,000

80,000

40,000

US $ 5

30,582 t

197,000 t

Rare Earths SupplyDid the development alert us?

6

0

20000

40000

60000

80000

100000

120000

2005 2006 2007 2008 2009 2010 2011 2015 2020

mt Earthsquake

Japan

China has more than 95% market share

Chinese government cut export quota by mid 2010 resulting in shortage

Prices sky-rocketed

Quota

DemandROW

Rare Earths SupplyA amply quota over years reduced our attentiveness!

7

Product Risk

Social LaborStandards

Risk

Environmental,Health & Safety

Risk

REACH Risk

Sc

or

in

g

Business Impact(i.e. Single Source Risk)

XX-- A

xis

Axis

SustainabilityRisk∑

Supplier / ProductRisk Matrix

A

Sele

cte

dm

ate

rial

-V

alu

e

B

C

tonsC B A

# 5

# 4# 3

# 3# 124

# 9

# 16# 13

# 17

€A

Sele

cte

dm

ate

rial

-V

alu

e

B

C

tonsC B A

# 5

# 4# 3

# 3# 124

# 9

# 16# 13

# 17

€

YY--AxisAxis

Compliance Risk

Sustainability Risks

8

Sustainability RisksEHS – The burden of progress

Source: Stern

9

Sustainability RisksEHS

Risk assessment based on product risk by hazard(to humans & environment) and country risk

Supplier audits on-site, performed and tracked by local EHS experts

Advice on measures to be taken, time-line agreed for improvement

Follow-up and re-audit after 6 months

Pass or…

Disqualification ofsuppliers

Environment, Health & Safety (EHS)

Our suppliers comply with our quality management requirements and act in

accordance with the Principles of the Global Responsible Care® initiative.

10

1. BASF has a high risk exposure because we directly spend ~1/3of our turnover for raw materials.

2. A capable Risk Management helped us to make profit evenduring the financial crisis.

3. BASF Raw Materials Procurement implemented acomprehensive Risk Management system to be prepared forsuch uncertainties.

4. Risk Management is an integral part of our procurementstrategies which helps us to reduce unacceptable risks.

Risk ManagementGood reasons to thoroughly analyze risks

11

Crude Oil

Recovery

Petroleum

Refining

Fluid

Catalytic

Cracking

Gasoline

Production

Distribution

to filling

stations

Consumer

Access

Rare Earths

MineralsMetal

Oxides

Magnet

Powders

Magnet

Production

Motors &

Generators

Vehicle

Assembly

Sales

Showroom

Dependence on

Middle East

Dependence on

China

Source: Molycorp Minerals Llc. / Prof. Kausch

Risk ManagementLimits of Risk Management

Crude Oil Value Chain

Rare Earths Value Chain

12

Developing a sourcing strategy for Rare EarthsSupply/demand balance 2020

Yttrium

Erbium

Dysprosium

Terbium

Gadolinium

Europium

Samarium

Neodymium

Praesodymium

Cerium

Lanthanum

RoW BalanceChinese BalanceGlobal Balance

There will be a battle for Dysprosium and Europium

The Chinese will start buying some elements from outside China

A relocation of production to China might not help to solve the problem

13

A task force from all affected businesses analyzed short- and long-term options.

Developing a sourcing strategy for Rare Earths

14

Three Pillar Strategy

Rare Earths Sourcing Strategy