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Running head: PETROCHEMICALS MARKET
Petrochemicals Market
Name
Institution
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PETROCHEMICALS MARKET
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Petrochemicals Market
Before establishment of a business, entrepreneurs have to conduct a feasibility study to
define the probability of success in the supply of the goods and services. Ideally, the firm has to
make a critical SWOT analysis, which defines the internal preparation of the company to achieve
its objectives. Additionally, the firm should consider the externalities that are defined by the
PESTEL analyses (Chartered institute of purchasing and supply, 2014). Through such an
approach, the establishment makes the various changes that can enhance its market concentration
so that it can have optimal profitability. On the other hand, the firm may focus on the specific
market segment and define the values that will help the company to achieve its long term and
short term aims. For example, an enterprise that is involved in the petrochemicals segment
should focus on the market conditions and define the favorable strategies that may be used to
enhance its supply of merchandise in the market (Saxe, 2015). Imperatively, this ensures the
company is competitive in the region and can trounce its competitors. Thus, it is crucial to define
the petrochemicals market, the demand and supply in the marketplace, and the current pricing
mechanism that is used.
Petrochemicals companies are instrumental in the economy as they provide ingredients
used to manufacture a range of products in a country. Accordingly, it is noted that United States,
Western Europe, and Japan control over 32% of the petrochemical trade yet they controlled over
80% in the nineteen eighties while the BRIC (Brazil, Russia, India and China) have made
tremendous improvements over the years to dominate the market (Clayton, 2015). Ideally, the
products are instrumental in the process of manufacturing household items, foodstuff, and
medicine. For this reason, the industries that are involved in the supply of chemicals are essential
in an economy since they are linked to individuals’ basic needs. Additionally, they supply other
needs to consumers so that the economy can grow at a steady pace. Imperatively, the
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petrochemicals industry has developed significantly over the past five decades to become one of
the most influential sectors in the country. In the past, the demand for the chemicals was low
since there was minimal economic growth in various places. In fact, the areas that created a large
demand for the services were cities as well as other developed towns. However, there has been a
rise in the demand for the services and this has had an impact on the petrochemicals such that the
shareholders involved have had to increase the investment. For instance, the increase in the
world’s population has led to an increase in the demand for chemicals to be used in varied
capacities (Chartered institute of purchasing and supply, 2014). Thus, entrepreneurs have defined
this perspective as a multibillion market that needs colossal amounts of investment for greater
returns.
Companies such as Union Carbide are involved in the petrochemical industries and
supply the materials that are used by customers to make products. However, it is noted that the
companies produce chemicals and polymers that have to undergo various conversations before
they can be released to the market. Additionally, the clients have to make further conversions
before they are sold to the final consumers. Due to the changes in the different markets, the size
of the market is extensive and can only be measured by the amount of chemicals that are
supplied to the clients. In the past, there were only two companies involved in the business
namely Union Carbide and Esso. Contrastingly, the competition in the market has grown
significantly as other companies seek to control a specific share in the market (Clayton, 2015).
For this reason, many people have made investments in the field to supply the various customers
with their needs. Nonetheless, the cutthroat competition has led to specialization such that some
companies define a strategic market that will be supplied with the products. Thus, the firms have
a wide variety of choices such that they may supply their merchandise to various individuals. For
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instance, they can supply the raw materials to make paints and coating, wire and cables,
household products, pharmaceuticals, automotive, textile industry, oil and gas, personal care and
agriculture. Thus, the segment is an extensive market that involves distinct groups of individuals
that supply divergent scopes of services.
Demand and Supply Factors that Affect the Petrochemical Industry
The demand and supply factors are critical aspects in a market as they have unforgiving
influence on businesses. For this reason, entrepreneurs have to use forecasts and other strategies
to ensure that their stability in the market is certain. In fact, some countries that majorly rely on
the petrochemical sector as the main economic activity may have to focus more on the industry
as this could halt their national growth. For example, some of the countries in the Middle East
that depend entirely on the production of crude oil have recorded dwindling performance due to
the hardship in the trade. Nonetheless, the most critical perspective that impacts the enterprise is
the production integration (Saxe, 2015). Notably, most of the companies that are involved in this
segment are integrated so that they can improve their margins. In many cases, they ensure that
there is effectiveness in the use of raw materials to avoid depletion in the future. Additionally,
they may have to merge or engage in partnership with other companies to enhance the sales,
marketing, and distribution. Further, some establishments are divested since the operating costs
may be higher. Eventually, only a few companies survive the threats and can supply the
products to the consumers.
Shortage of natural gas is a threat to some of the companies that are involved in the
petrochemicals industry. It is noted that many countries advocate for the use of affordable
sources of energy to limit the global warming effects and climate change. However, the supply
of the petrochemicals is dependent on the availability of the raw materials. Thus, the prices of the
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supplies may change due to the unreliability of the inputs. For this reason, the firms may have to
consider alternative approaches for consistency in the supply of products to their customers
(Chartered institute of purchasing and supply, 2014). Notwithstanding, the companies are
regulated by the governments, which have specified rules that should be observed. For example,
it is noted that the companies ought to limit their emissions lest they face grievous consequences.
In some instances, companies that procure materials that pollute the environment may be faced
with stringent actions while others face closure. For example, the oil spillage is a case that
involves various companies that are under investigations for the contribution. Thus, the firms
may have to make a change on their procurement procedure to abide by the stipulated laws.
Businesses enhance the economies of scale to reduce their production costs but increase
their profit margins. This strategy is deployed in almost all sectors including the petrochemical
industry so that they can make significant improvements over time. Innately, it is noted that most
of the companies in this sector have increased their scales of production and some have doubled
their size. On the other hand, some of the companies have not made significant improvements
and this is detrimental (Saxe, 2015). For example, the rickety machines are less efficient,
smaller, and costly. Thus, most of the firms that do not transform face closure if they do not
introduce new developments. Due to the risks involved in the segment, many of the companies
have to go through metamorphosis to assert their future. However, this has an effect on the
supply and demand of the petrochemicals since the balance is affected when some of the
producers close down.
Pricing Mechanism
Price mechanisms are the various strategies that are used by businesses to determine the
value of the products and services (Saxe, 2015). In some cases, the demand and supply curves
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have a significant influence since the market is not regulated by the government. However, in
some instances, the government may have to introduce price ceiling to ensure the consumers are
not exploited. Since the petrochemicals segment is diverse, the producers may use distinct
pricing mechanisms, especially when the government is not involved in the control (Chartered
institute of purchasing and supply, 2014). Nonetheless, distinct countries also have different
pricing mechanisms although they may apply to identical products. For example, the valuation of
the products in the United States may be distinct from the process that is employed in the United
Kingdom.
In the recent past, there has been furor over the fluctuating fuel prices (Saxe, 2015). In
fact, the nations that depend on the supply of the petrochemicals were adversely affected due to
the low returns in their economy. Imperatively, when the prices of the crude oil rise, the retail
prices of the commodities will also increase. Illustratively, the prices of oil have escalated since
2004 when it was sold at estimated $ 139 for every barrel at the peak of the trend. However, in
2014, the prices started to depreciate and the lowest was recorded at $ 50 per barrel (Clayton,
2015). Importantly, some of the non-OPEC countries such as the United States had explored
other options such that there was a rise in the supply. Due to the changes in the pricing, the
petrochemical industry is affected. In fact, they have to reduce their pricing due to the effects of
the supply and demand curves.
The shortage of some products in some countries may lead to different pricing strategies
in the petrochemicals (Clayton, 2015). For example, it is noted that the supply of some products
in a country could lead to importation to meet the demand. Due to the increased costs to acquire
the resources, the customers may also have to pay an extra amount of money. Nonetheless, the
government may also impose a specific tax on products that could cause harm to the
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environment and population so that there is limited supply. Innately, the value of the specified
petrochemicals will be high such that very few people can afford them (Chartered institute of
purchasing and supply, 2014). Additionally, technology has an effect on the pricing, especially
when the costs are low and the production is high. In the current century, technological
advancement is embraced in all sectors so that the marginal costs of production are reduced.
Consequently, the value of the products is lowered to increase competition.
In conclusion, the petrochemical industry has grown over the years and it has become
more effective. Due to the influence of the supply and demand factors, the investors have to be
vigilant in their investments so that they can sustain the businesses. For example, many of the
establishments have divested other firms to enhance economies of scale. Notwithstanding, the
sector has divergent pricing mechanisms that could affect the profitability. In fact, the indulgence
of the government could also influence the valuation mechanism since it is a regulator. However,
the world should experience positive transformation in the sector as more investors find
innovative production avenues.
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References
Chartered institute of purchasing and supply. (2014). Managing expenditures with suppliers.
London: Chartered institute of purchasing and supply.
Chartered institute of purchasing and supply. (2014). Suppliers pricing decisions. London:
Chartered institute of purchasing and supply.
Clayton, B. C. (2015). Market madness: A century of oil panics, crises, and crashes. New York:
oxford University Press.
Saxe, G. (2015). Handbook of petrochemicals. S.l.: Ny Research Pr.