Customers delay orders on falling crude − US A Schulman

Al Greenwood

07-Jan-2015

Customers delay orders on falling crudeHOUSTON (ICIS)–Customers of US-based A Schulman delayed orders in the latter half of November because of falling oil prices, which led them to expect that their raw-material costs would soon follow, the CEO of A Schulman said on Wednesday.

Order patterns have since returned to their typical pace for the time of the year, said Bernard Rzepka, CEO. He made his comments during an earnings conference call.

“The market is coming back,” Rzepka said.

The sharp drop in oil prices has increased concerns about destocking. In destocking, customers purposely delay purchases of raw materials because they expect prices will decline further in the future.

Oil prices have fallen sharply since June, when Brent was $115/bbl. The pace quickened in November, and Brent neared $65/bbl by mid-December. Recently, it had fallen below $50/bbl before recovering.

Destocking could leave suppliers with relatively high-cost inventory which they would have to sell at a loss.

Earlier in December, Jefferies warned that customers will likely restock more slowly, if they do not outright deplete inventories.

So far, the decline in oil is beginning to erode the price of polyolefins such as polypropylene (PP), Rzepka said.

At first, it would seem that A Schulman’s margins would benefit from lower polyolefin prices, he said.

However, that is not the case, Rzepka said. A Schulman’s customers are well aware of the decline in polyolefins prices, and they expect those lower prices to be passed down to them. 

In fact, lower oil prices could continue to disrupt typical buying patterns, he said.

Over the years, A Schulman has attempted to insulate itself from such price volatility by focusing on value-added products, Rzepka said. The recent drop in oil prices underscores the rationale in pursuing such a strategy.

“Our customers buy more and more products from us, which we price on the value we deliver,” he said. “We will try to be more and more independent from these up and down swings of commodities.”

Longer term, Rzepka said that A Schulman should benefit from lower oil prices.

The drop in prices will ultimately stimulate the economies of oil-importing countries − particularly Japan and the Europe, Rzepka said. Europe is A Schulman’s biggest market.

Dow Chemical CEO Andrew Liveris repeated a similar sentiment in October during his company’s third-quarter conference call.

Earlier on Wednesday, Peter Huntsman, the CEO of polyurethanes producer Huntsman, said low crude prices should increase the company’s margins since many of its feedstocks are oil-based.

In addition, low oil prices should give consumers more money to spend on other things, Huntsman said. About one third of Huntsman’s business is consumer oriented.

Additional reporting by Stefan Baumgarten

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?