Flostock News #23

Anti-Volatility tips for Purchasers

Avoid Volatility

We can give the following  7 Anti-Volatility tips for Purchasers:

1. Steer on End Market Demand as a spot on the horizon; not on the stripes in the middle of the road.

2. Adapt your inventory slow

3. Include Reactive stocking behavior in a robustness test for suppliers

4. Understand your cycle and invest anti-cyclic

5. Measure your pipeline (what has been ordered minus what has been delivered)

6. Measure your pipeline (what has been ordered minus what has been delivered)

7. Don’t reduce your inventory in December.

 If you want to have some more background for each tip, visit this page on our website.

Upstream Price Speculation

Speculation is a form of gambling

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. 

Stable Fleets can have internal volatility, according to Flostock’s 22nd Law of Demand

Stocks may contain hidden volatility


A building full of machinery, a fleet of trucks or a safety stock of canned food can superficially look stable, safe, and inert. But be aware: such a fleet can contain a hidden time bomb of volatility if the fleet build-up was not evenly spread over time. In such case the replacement will also be unevenly spread over time. Examples are the asset built-up of China over the last 20 years, the buying of a full wardrobe of fashionable clothes at the start of your career, and the aging of the baby boom workforce.  

Price speculation at the Polyolefins conference in Amsterdam

The ICIS World Polyolefins Conference

In March the 4th 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.