Price Volatility

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The global petrochemicals industry has been affected by rise in price volatility for years. Prices are less stable and are difficult to predict in recent times. As a matter of fact, the uncertainty in prices of petrochemicals has affected the development of the petrochemicals market ofIndia on a global front.

The chief reason for such unstable prices is the change in crude oil prices. The market of petrochemicals inIndia on the global front is fairly large. The foreign pharmaceutical trade is directed towards Middle East and China at large. The large volatility in prices has called for implementation of risk management.

Though price volatility in the petrochemical market is highly unpredictable, there lies a thin glimmer of hope during the spring and winter seasons inIndia which is due to the constraint of the available supply. Unfortunately, that is just a small ray of hope for the petrochemical markets in the area of price volatility.

The rising trend of petrochemical prices is exemplified through the rise of ethylene prices, indicated by the following statistics:

  • 2000 - 5 %
  • 2002 - 9 %
  • 2004 - 14 %

Similar record of volatility in prices of benzene is registered as 13% in 2005.

The prices of petrochemicals are subject to the variations in prices of energy commodities, which results in price volatility. The amazing thing about the prices of petrochemical is that previously, they were believed to be based on the prices of the finished goods for which they were used in but now they are sensitive to crude oil prices.

No doubt the size of the petrochemical market is smaller than the oil market and this gives the petrochemical market the edge in increasing individual spot transactions. This further aggravates the situation of price volatility. There is a sense of low transparency in the prices of petrochemicals.

Apart from the effect of prices of oil market, another major reason for price volatility, is the global Petrochemical market. China is emerging as a major buyer of Petrochemicals. The industry there is growing rapidly which in turn has contributed to increase in global demand of petrochemicals.

Interestingly, the middle-east has a major share in the supply of ethylene derivatives. The region accounts for the highest amount of surplus in this regard amounting to 7 million mt. So price volatility is here to stay considering the fact that the petrochemicals market is currently facing a huge boom.

As such, price volatility has been affected to a certain extent by sophisticated and new buyers. These buyers are demanding more value added products and are keen on the quality, also increasing their contracts at the same time.

Suggestions for controlling price volatility have been worked on lately. They include floors, swaps, cost collars, virtual integration, and caps.

Last Updated on 13 December 2011