29 May 2002 16:31 [Source: ICIS news]
LONDON (CNI)--Risk management can create value in the benzene business as long as liquidity exists, said Tim Laughlin, global business director for aromatics at Dow Chemical.
However, he stressed on Wednesday at the First European Aromatics & Derivatives Conference* here that it is industry's responsibility to ensure that there is market liquidity and transparency. The distribution of risk is paramount to obtain liquidity, he added.
The present quarterly price mechanism in Europe is a cause of market inefficiency due to the volatility in crude oil, naphtha and currency, according to Laughlin. He called for a reference market price with shorter time intervals, which would lead to less volatility in the benzene market.
However, markets can be very efficient, he said, when the market price allows the quick addition or closure of capacity, such as balancing the market with HDA (hydrodealkylation) plants.
Companies entering risk management must define objectives and exposures, continued Laughlin. It is important to meet reporting standards and accounting procedures and formalise back-office procedures, he explained.
Laughlin also stressed the importance of managing exposure rather than managing margins. He added that when a market falls below a hedge, it destroys value for companies.
* 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).
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