Aromatics '02: Producers should use hedging to cut costs

29 May 2002 15:18  [Source: ICIS news]

LONDON (CNI)--The aromatics industry will need to use new tools such as hedging and e-commerce to help minimise price volatility and cut costs, according to Nancy Sullivan, vice president for aromatics/phenol at Shell Chemical.

She told delegates here at the First European Aromatics and Derivatives Conference* that producers are caught in the squeeze between volatile energy prices and pressure from customers for lower energy prices. "We in the aromatics chain are caught in the same squeeze as our customers."

For many businesses, margins have been halved between 1995 and 2001. For example, she showed the price ratio of nylon to naphtha dropping from 13 to 7 and for polycarbonate to naphtha from 17 to 9 in that period.

Sullivan noted that large automobile companies and retailers continue to pressure for fixed contracts with year-on-year price reductions. However, if customers still want a reliable supply, they should not expect fixed price contracts when suppliers have inherent volatility in raw material costs. Instead, she urged customers and suppliers to work together to minimise price volatility using tools such as hedging vehicles and trading capabilities.

She noted the formation of Shell Chemical Risk Management Co to help customers manage volatility through the use of hedging and other financial vehicles.

*The First European Aromatics and Derivatives Conference, organised by ICIS-LOR, European Chemical News (ECN) and International e-Chem, concludes on Thursday. CNI, ICIS-LOR and ECN are all owned by Reed Business Information (RBI).

By: Peter Taffe
+44 20 8652 3214

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