Role of Market Indices
Reviewing Your Options
When looking at your pricing options for plastic resins, look closely and ask yourself some questions.
Are you looking at an index or market advisory that details the cost of manufacturing back to:
>>>>>>>Energy costs and price of electricity
>>>>>>>Price of steam
>>>>>>>Cost of labor
>>>>>>>Cost of technology
Do you charge your own customers this way?
Can anyone provide marketwide assessments of the price of steam, labor, real estate, or even power for sites across the United States? Isn’t the purpose of asset investment to be competitive relative to the commodity price?
When reviewing polyethylene costs, are “posted contract prices” or a “net transaction price” used for ethylene? Is the seller of this polyethylene a purchaser of ethylene at a contract price, if a purchaser of ethylene at all?
What does your supplier buy and how do they pay for it? If they do not buy ethylene, do they buy spot ethane? Spot natural gas? Are you paying a margin for anything other than the commodity you are purchasing?
As the saying goes, consider the source. And consider your options.
The price of anything is what a buy will pay, plain and simple.
A few simple questions that cut to the heart of the pricing issue may not only save you money, but may ultimately create market efficiencies.
Information is available for use. Information providers and consultants have no stake in the market as far as “skin in the game” goes.
Knowing the price as published by an index or news agency or consultant is responsible. Leaving pricing decisions in the hands of an index or news agency or consultant is risky business, and it’s unnecessary.
As volatility becomes a more permanent factor in the markets, the sensitivity surrounding responsible pricing decisions will become more intense, and the risks of leaving your pricing up to others could become a very dangerous practice.
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The PetroChem Wire is a daily newsletter serving the petrochemical industry. It counts every major chemical and refining company among its subscribers, as well as many major manufacturing concerns, global conglomerates, industry consultants, equity analysts and government agencies.
Contact:
Kathy Hall, Executive Editor
+1 720 480 6288
kathy@petrochemwire.com
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Copyright 2009