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Chemical feedstock price volatility is lethal. It can kill a company in a matter of weeks and destroys business models overnight.

With feedstock taking on average 60% of a chemical company’s total costs, chemical manufacturers are wary of changes to supply costs, but unfortunately for them, many of the feedstock goods have no alternative, especially in the short to medium term. As the advice website Investopedia states, “Many of the materials used as feedstock for chemical products are irreplaceable. For example, as of 2015, Dow Chemical devotes about 40% of its operating expenses to petrochemicals needed to create its chemical products. A substantial part of these costs consists of commodities with costs that are prone to fluctuate greatly with the broader global economy as energy prices and consumer demand change.”

If a massive chemical industry player like Dow Chemical can fall victim to feedstock price volatility, then it must be expected that the rest of the industry is also liable to its influence.

Helpfully, industrial chemical manufacturers and traders can find a great deal of support on how to manage feedstock price volatility. But with experts from economics, retail, wholesale, psychology, chemical engineering and sales all offering suggestions, it can be difficult for a chemical producer to know how to react when suppliers prices go up overnight.

So in an attempt to condense some of this advice into a more manageable volume, and yet without wanting to over-simplify a highly complex subject, here are the top 6 tips for setting chemical prices.

1. React.

Prior to the 2014 collapse in petroleum prices, the cost of a barrel of oil had remained stable for four years, when the price collapsed many companies were slow to change strategy when cost-advantages had so clearly changed.

A recent report on the chemicals industry entitled ‘Preparing for a Volatile Environment’ by the renowned consultants McKinsey, underlines this point, stating that, “The 2014 shock has shown that many chemical companies are incapable of changing direction quickly enough to respond appropriately to oil-price shocks. The stable-oil-price environment from 2010 onward allowed many chemical-company leaders to focus their attention away from volatility management.”

2. Empower Management.

When prices are changing rapidly, speed is important when switching business strategy to limit damage. Doing this will require a series of decisions by top-management. As McKinsey consultant and analyst Chris Musso, recommends, “Assemble a senior, cross-functional decision-making team. In highly volatile environments, decisions must be made much more quickly and at higher levels than in business-as-usual periods.”

Deloitte’s report on ‘Pricing in the Chemicals Industry’ supports this approach, advising chemical companies to, “Engage your management – The commitment of top management to invest in powerful pricing programmes is crucial to the successful execution of a pricing strategy.”

3. Calculate Volatility Risk.

Before your feedstock price has gone through the roof, calculate the chance of this happening, and ask yourself, “Does the risk of this happening and its consequences outweigh the gains to be made if it doesn’t?”. Knowing the answer to this will prevent you from being exposed to feedstock price volatility unnecessarily.

As Sheng Hong, a McKinsey consultant and market strategist, stated, when he said that chemical producers, “…should take decisive action to understand what is the ‘right’ amount of risk for their business, and then eliminate undesirable risks by shifting them through contracting, financial hedging, and internal operational choices (for example, sourcing alternative feedstocks).”

4. Accept that Feedstock Volatility will Happen.

Given the increasingly rapid changes in a now global economy over the last 20 years, then future price slumps and peaks are a certainty. The wise chemical manufacturer must know that feedstock prices will change, and sometimes rapidly, and be prepared for it. As a recent report entitled ‘Responding to Oil Price Volatility in the Chemical Industry‘ by Piet de Paepe, Jason McLinn and Mark Porter for the business consultancy Bain & Company states, “Over the past decade, oil prices have gone through at least two complete cycles, and more big swings are likely in the future. Chemical producers will have to continue to make short- and mid-term plans during this time of volatile prices.”

5. Reconsider Pricing.

When feedstock prices fluctuate adversely, it may seem that the obvious reaction is to increase your sales price to counter the effect. This may not always be the right choice, but it is important that pricing policy is understood by the whole team, and that it is clear who is responsible for pricing policy.

This is a point made clear by Accenture’s analysis of chemical pricing policies, in their report ‘Chemical Pricing Strategies in a Global Market’, which states that, “There are organizational and operational challenges that must also be addressed when moving to a strategic pricing approach. It is sometimes unclear who is responsible for setting prices because there are no clear governance procedures. Even when the business unit is designated as being responsible, they may have no market information to properly assume this responsibility. In addition, there can be conflicts between the direct sales force and sales subsidiaries, or even among business units. In order to resolve these issues, the authority of each business unit and sales organization must be clearly defined, and consistent operating processes must be followed.”

6. Stay Focused on what is Important.

The last thing that any business needs is panic. So it is vital that the central goals of the business remain clear and that those goals are met first. As Chris Musso writes, “Identify value and develop action plans. Companies must rapidly translate priorities into concrete actions by identifying pockets of value at stake (for example, customers at risk of switching to other suppliers) and developing clear and specific action plans (for instance, by customer) for frontline teams to implement.”

Whatever sector of the chemical market a business operates in, it is perhaps most important to understand the inevitability of feedstock challenges.

As McKinsey advises, “Chemical companies need not necessarily fear feedstock-price volatility; in fact, the best ones will savour the opportunities it presents. With disciplined investment in organizational capabilities and agility, producers can effectively plan for, respond to, and benefit from price shocks.”

For whilst there is inherent risk in any changing business situation, there is also opportunity.

Panasonic has revealed a bendable battery that has paved the way for a wide range of flexible electrical products, such as smart clothing, fitness bands and even a scrollable smart phone.

The discovery is based around a standard lithium ion battery that, as the BBC reports, has its “active ingredients painted onto the inside, that is itself then wrapped in an aluminium/plastic mix for the shell”.

Exhibiting the new design at the Japanese technology fair Ceatec, analysts believe that whilst the charge is not yet big enough to power anything practical (only 17.5 milliamps), the design could lead to countless other technologies. As Ben Wood, an analyst with research company CCS, said when talking to the BBC: “I’d wager that Panasonic’s new technology is just one piece of a more complex jigsaw, and it will be some time before we see truly disruptive devices emerging.”

This is especially true as Panasonic claims that bending the battery does not affect performance, and measures only 0.55mm thick with a maximum ‘bend’ of 25 degrees.

The battery is expected to be handed over to manufacturers some time at the end of October, and maybe available to the public in 2018,

You can learn more about Panasonic’s new battery via the BBC report here.

Modern polymers and plastics frequently contain nanoparticles, miniature particles that measure less than 100 nanometers wide. These tiny pieces of silver, silicon or similar chemical feedstock, are used to improve a polymer’s electrical, mechanical or durability performance. However, little research has been done to find out what happens to these nanoparticles when they are exposed to heat, humidity, UV rays, and rain, over time.

Do nanoparticles impact the environment? Do they pose a health risk to humans or wildlife? How do they degrade and how does this impact the polymer coating’s effectiveness?

Well now a research team from the National Institute of Standards and Technology (NIST) has begun asking all these questions. As the institute’s own website reports, “The goal of this study is to investigate the process and mechanism of surface degradation and potential particle release from a commercial nanosilica/polyurethane coating under accelerated UV exposure.”

The research was based around experiments conducted in the NIST SPHERE (Simulated Photodegradation via High-Energy Radiant Exposure), a piece of equipment described as, “a hollow, 2-meter (7-foot) diameter black aluminum chamber lined with highly UV reflective material.” In this way, the team was able to recreate 10 to 15 days of outdoor UV exposure with just one day in the SPHERE.

For a subject matter, the study used a commercially available polyurethane coating containing silicon dioxide nanoparticles, and exposed the coating to intense UV radiation for the equivalent of 100 days. As the research team explains, “All samples were then weathered at a constant temperature of 50 degrees Celsius (122 degrees Fahrenheit) with one group done in extremely dry conditions (approximately 0 percent humidity) and the other in humid conditions (75 percent humidity).”

Publishing their results in the Journal of Coatings Technology and Research, the study states that, “The results demonstrated that the added silica nanoparticle solution decreased the photodegradation rate (i.e., stabilization) of the commercial PU nanocoating.”

Meanwhile the online scientific journal Phys.org reported on the results as follows, “Both sets of coating samples—those weathered in very low humidity and the others in very humid conditions—degraded but released only small amounts of nanoparticles. The researchers found that more silicon was recovered from the samples weathered in humid conditions and that nanoparticle release increased as the UV exposure time increased. Microscopic examination showed that deformations in the coating surface became more numerous with longer exposure time, and that nanoparticles left behind after the coating degraded often bound together in clusters.”

To date, this study is really only the start of a series of experiments into how the weather effects polymer coatings that contain nanoparticles, the results from which will aid the entire polymer coating industry. As NIST research chemist and lead author Deborah Jacobs, makes clear when she says, “These data, and the data from future experiments of this type, are valuable for developing computer models to predict the long-term release of nanoparticles from commercial coatings used outdoors, and in turn, help manufacturers, regulatory officials and others assess any health and environmental impacts from them.”

With nanoparticles playing an increasingly important role in the development of polymers and the coatings industry, further research is needed to find out more about the long term effects of these vital chemical feedstocks. Only then will chemists be able to measure the impact of plastic coatings on the environment, or even to understand how the environment impacts plastic coatings.

Photo credit: NIST & Polyurethanes 101