The Petrochemical Industry is volatile, as is well known. Over the  years the industry had to adapt to fast changing supply/demand situations and to strong differences in prices. This stimulates reducing inventories when prices are expected to go down and the reverse when prices are expected to go up. Of course forecasting the future is difficult, so it is common to extrapolate the past, thus responding with a delay. As a result there will always be an overshoot at the turning points of the pricing cycles. Demand in petrochemicals is therefore even more cyclic than it already would be without price speculation.

In general, the feeling is “that you won’t get sacked for missing an opportunity, but will get sacked for sitting on a warehouse full of products in a falling market.” It is interesting to observe that this extra volatility in general is initiated upstream, by oil supply and demand. The effects trickle down the chain and create additional shortages and volatility, which interferes with the already existing variation in end market demand that is bullwhipping upstream. 

In March the 4^th World Polyolefins Conference was organized by ICIS, and Flostock was one of the speakers. You can download the presentation here. During the meeting it became clear that there is a lot of volatility in these plastics. Supply capacity is reduced by some shut-downs, while oil-price driven destocking reversed into restocking when the oil price stabilized and started to go up again. A shortage developed which immediately resulted in price peaks.