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Navigating Oil Price Volatility in the Chemical Industry

Navigating Oil Price Volatility in the Chemical Industry

Sudden shifts have served as an acute reminder of the need for chemicals companies to improve their ability to manage their businesses through an increasingly volatile price environment.

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Navigating Oil Price Volatility in the Chemical Industry
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This article originally appeared on AICHE.

The decline in oil prices that began in summer 2014 has rapidly changed the basic economics of the global chemicals industry and generated widespread uncertainty. Price volatility is particularly complex in chemicals because it affects everyone differently. Some have benefited: Makers of specialty chemicals, for example, saw feedstock prices drop yet have often been able to maintain price levels. Others have not: Commodity chemical makers have saved on feedstock and energy, but many have had to pass those savings on to customers given the transparency around their value and pricing.

Regardless of whether lower cost inputs have benefited or hurt, the sudden shifts have served as an acute reminder of the need for chemicals companies to improve their ability to manage their businesses through an increasingly volatile price environment. Many are finding it hard enough to create near-term, three-year financial forecasts or even land their operating budgets for the coming year. And evaluation of long-term major capital projects has become incredibly difficult. At the same time, volatility is neither a justification for forging ahead with blinders on nor an excuse to park capital on the sidelines and wait for the uncertainty to clear.

This article discusses why energy and feedstock prices dropped, where they could go next, and how the volatility has affected chemicals producers. The article examines how chemicals producers can use scenario planning to prepare for uncertainty, and offer several specific tactical and strategic steps that chemicals producers should be taking to position themselves for the eventual correction.

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