BASF Report 2021 Consoli dated Financial Statements – Notes 267 December 31, 2021, financial liabilities related to contracts yet to be By holding commodity derivatives and precious metal trading Exposure due to commodity derivatives adjusted were identified in the amount of €302 million. These are positions, BASF is exposed to price risks. The valuation of Million € mainly variable-rate bank loans referenced to a USD LIBOR commodity derivatives and precious metal trading positions at fair December 31, 2021 December 31, 2020 (€187 million) or EONIA (€115 million). Furthermore, financial assets value means that adverse changes in market prices could negatively Exposure Value at risk Exposure Value at risk related to contracts yet to be adjusted were identified in the amount affect the earnings and equity of BASF. Crude oil, oil of €85 million. These are mainly short-term loans, particularly to products and 97 18 56 5 natural gas nonconsolidated subsidiaries, that are referenced to a USD LIBOR BASF concluded several physical power purchase agreements Precious metals 51 1 88 1 (€85 million). No derivatives were identified that are associated with (physical PPAs) in Europe with terms of up to 25 years in 2021. contracts yet to be adjusted. Under the physical PPAs, BASF procures electricity and associated Agricultural 58 0 37 0 commodities green electricity certificates, known as guarantees of origin (GoOs), Electricity and Commodity price risks: Some of BASF’s divisions are exposed to at a fixed price. Some physical PPAs are not eligible for the own use green electricity 388 7 – – strong fluctuations in raw materials prices. These result primarily exemption and are therefore recognized as derivatives in the bal- certificates from raw materials (for example naphtha, benzene, natural gas, LPG ance sheet. In addition, BASF concluded what is known as a virtual condensate) as well as from precious metals. BASF takes the power purchase agreement (virtual PPA) with a term of 15 years in The exposure corresponds to the net amount of all long and short following measures to reduce price risks associated with the the United States in 2021. The virtual PPA contains an embedded positions of the respective commodity category. purchase of raw materials: contract for difference for electricity that is recognized separately as For more information on BASF’s financial risks and risk management, see Opportunities and Risks – BASF uses commodity derivatives to hedge risks from the vola- a derivative in the balance sheet. from page 151 onward tility of raw materials prices. These are primarily options on crude oil, oil products and natural gas. BASF performs value-at-risk analyses for all commodity derivatives Default and credit risk – The Catalysts division enters into both short-term and long-term and precious metal trading positions. Using the value-at-risk analysis purchase contracts with precious metal and battery metal enables continual quantification of market risk and forecasting of the Default and credit risks arise when customers and debtors do not producers. It also buys precious metals on spot markets from maximum possible loss within a given confidence interval over a fulfill their contractual obligations. BASF regularly analyzes the various business partners. The price risk from metals purchased defined period. The value-at-risk calculation is based on a confidence creditworthiness of the counterparties and grants credit limits on the to be sold on to third parties, or for use in the production of interval of 95% and a holding period of one day. BASF uses the basis of this analysis. Due to the global activities and diversified catalysts and battery materials, is hedged using derivative variance-covariance approach. customer structure of the BASF Group, there is no significant instruments. This is mainly performed using forward contracts, concentration of default risk. The carrying amount of all receivables, which are settled by either entering into offsetting contracts or by BASF uses value at risk in conjunction with other risk management loans and interest-bearing securities plus the nominal value of delivering the precious metal. tools. Besides value at risk, BASF sets volume-based limits as well financial obligations stemming from contingent liabilities not to be – In the Agricultural Solutions division, the sales prices of products as exposure and stop-loss limits. recognized represents the maximum default risk for BASF. are sometimes pegged to the price of certain agricultural For more information on credit risks, see Note 18 from page 247 onward commodities. To hedge the resulting risks, derivatives on agricultural commodities are concluded. Liquidity risks In addition, BASF holds limited unhedged precious metal and oil BASF promptly recognizes any risks from cash flow fluctuations as product positions, which can also include derivatives, for trading on part of liquidity planning. BASF has ready access to sufficient liquid its own account. The value of these positions is exposed to market funds from the ongoing commercial paper program and confirmed price volatility and is subject to constant monitoring. lines of credit from banks.