In 2020, the global chemical industry’s production value reached approximately 5.7 trillion U.S. dollars, and in 2023 with 4,000 metric tons of chemical production worldwide. With the United States, China, and Europe accounting for more than 75% of the global chemical market, it displays the chemical industry’s large landscape.
As the demand for chemicals increases, price fluctuations are expected, which are challenging yet important. Therefore, managing chemical price fluctuations effectively can lead to improvements in a company’s competitive advantage as well as its income.
This blog will provide tips on how to manage chemical price volatility to improve your business’s agility in the chemical industry.
Understanding the Landscape of Chemical Prices
Before moving on to the expert tips, you must understand chemical pricing principles and the factors influencing it, like raw material costs, market trends, etc.
Enterprises that deal with chemicals directly or indirectly must monitor trends to make informed decisions and react to the volatile chemical market.
Scenario of Acetic Acid Prices
Acetic acid is the most commercialized organic acid worldwide and has been known for more than 2,000 years. It is a useful chemical for price trend analysis because it has multiple uses in a variety of sectors and industries. Let’s have a look at some past data where the prices showed fluctuation.
In April 2019, the price of acetic acid in the United States was stable, but on a year-over-year basis, it increased by 5%. Across Southeast Asia, acetic acid prices grew slightly in April 2019, reaching 464 USD per metric ton, 2% higher than the previous month and 37% lower than the previous year. Prices in Europe increased by 2% to 468 USD per metric ton in April 2019 but were down by 4% from the previous year.
Reasons Behind the Acetone Price Changes
Overall Acetic acid prices have been volatile due to a variety of factors, including supply and demand dynamics, geopolitical events, and market trends. For example, China’s acetic acid market fluctuated in Q4 2023 because of supply restrictions and increasing downstream demand.
Businesses can monitor and evaluate data like the one above to gain insight into the acetic industry and make informed pricing decisions.
Tips to Manage Chemical Price Fluctuations
1) Monitor Market Trends
Following the development of market trends is very important in navigating price fluctuations. For example, before the collapse of petroleum prices in 2014, the cost of a barrel of oil was steady for 4 years, but many chemical companies were slow to notice.
To avoid shocks such as petroleum and chemical prices, one must predict or anticipate potential changes by analyzing market data using online tools, and software.
2) Supplier Diversification
Diversification can help mitigate risks related to changing prices and supply chain disruptions. For example, in 2020, chemical supply chains were challenged, and issues due to COVID-19 exposed vulnerabilities in supply networks.
Past issues taught a new lesson that prices cannot be the main factor for competing in the market, but companies also need to diversify suppliers for long-term goals. Businesses can avoid such issues by identifying alternative suppliers. Furthermore, they should also keep their communication and relationship with the suppliers strong to get timely updates about the market changes.
4) Use of Long-Term Contracts & Agreements
Long-term contracts can be helpful for short-term strategies as these provide stability and pricing predictability. For example, several companies have signed long-term contracts with feedstock suppliers and recycled off-takers to decrease risks.
Therefore, when setting up contracts, you can negotiate favorable terms to protect your business from market volatility as well as ensure sufficient feedstock.
5) Utilize Risk Management
Businesses can use risk management strategies like hedging and futures contracts to reduce price volatility and shield themselves from unfavorable market conditions.
For example, companies like BASF in 2018 implemented the use of futures contracts to lock prices for future deliveries of an important chemical feedstock named propylene.
Through this, businesses can enhance their financial resilience by strategically managing risks that will allow them to ensure chemical supply and protect profit margins.
6) Inventory Management
Efficient inventory management is important as it helps in effectively responding to price and demand fluctuations. Furthermore, it also helps in managing operational efficiency and reducing holding costs. SAP Enterprise is a tool many chemical companies use to track and trace ingredients and products for smooth inventory management.
7) Investment in Technology and Data Analytics
Technology and data analytics play an important role in price forecasting and risk management. For instance, companies like BASF, Dow Chemical, and Dupont rely on AI and machine learning to build predictive models to forecast maintenance, optimize operations, and improve materials discovery.
Conclusion
While the chemical market grows rapidly, mastering chemical prices requires a proactive approach. Therefore, it is important to use the tips shared here to position yourself for success and thrive in an ever-evolving chemical market.
