Case study: Simplifying complex hedging processes

How a chemical producer optimized its hedging and trading strategies

Chemical production and manufacturing on a global scale is complex. Intricate supply chains, global workforces, and changing markets all create risk and uncertainty for unprepared organizations.

That’s where advanced analytics can help. To see how, take a look at our latest case study.

A $60 billion chemical producer that operates in over 90 countries consistently faced high-risk trade deals. Today’s chemical industry is dealing with new challenges that require proper hedging and trading strategies. These strategies are increasingly critical to mitigate financial losses, so the chemical producer needed an ION solution to help.

A growing list of challenges for the chemicals industry

Here are three major challenges facing the $60 billion chemical producer and the chemicals industry as a whole today:

Challenge #1: Political and economic uncertainty and forecasting complexities

Market uncertainty is on the rise as geopolitical issues like the U.S./China Trade War and Brexit loom without clear paths for resolution. Chemical manufacturers that have been experiencing strong growth in demand, now must prepare to manage their manufacturing inputs and outputs in high-risk markets.

Challenge #2: Optimizing feedstock profitability

While traditionally chemical manufacturers have relied on cheap natural gas as a feedstock, the demand for LNG will continue to soar, ultimately driving prices higher. This increasingly competitive global LNG market may ultimately drive some producers to convert their facilities to rely on feedstocks from crude oil.

Still, the global crude oil markets have become more competitive since the U.S. began exporting oil and global demand continues to rise. For some chemical companies who purchase feedstocks on the global market, this can mean buying at higher prices compared to counterparts in countries like Saudi Arabia that source their feedstocks locally. Even geopolitical events like Brexit can impact the prices of feedstocks, causing prices to swing wildly.

Challenge #3: Compressed margins

With difficulty in predicting prices for base products, chemical producers will have challenges that lead to erratic margins and operating costs. Because of this, producers now have to respond more quickly to market changes to maximize profit.

 

The solution

Because of challenges like these, the $60 billion chemical producer needed a powerful advanced commodity analytics solution to pinpoint risk comprehensively. With all of the uncertainty in today’s chemicals market, producers have to have total visibility into the risk of their complete portfolio in order to manage countless competing variables and trading challenges.

But awareness of the industry’s challenges isn’t enough. Chemical producers need plans and systems in place to help them minimize uncertainty and risk. Without advanced analytics, chemical producers have difficulty maximizing the selling price of produced chemicals and hedging both the feedstock and the production to lock in profitability.

Is your commodity organization facing similar challenges? The ION FEA @ENERGY Suite can help you optimize your assets across power markets.

Read the ION FEA VaRworksPlus Case Study to learn how to simplify complex hedging processes.

 

 

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