Petrochemicals

Petrochemical profitability depends on the margin between feedstock costs and product prices, both of which we forecast. Feedstock prices are modeled based on oil and gas market factors like supply-demand, production decisions, and seasonal demand. On the product side, we analyse supply-demand balances, including new capacity and end-use trends. We also use cost curve analysis to predict price floors and when high-cost producers might shut down in oversupply.
Prices can spike in tight markets until demand drops or substitutes appear. Our forecasts include base and alternative scenarios to help clients plan budgets and contracting strategies. Scenario analysis also tests impacts of events like geopolitical risks to prepare clients for market shocks.

Petrochemical operations benefit from advanced modeling to optimize complexity. We use linear programming to optimise feedstock allocation and production, advising on the best feed mixtures based on prices and constraints to maximise margins. For example, the model may shift output toward high-margin products like polyethylene or aromatics. On the supply chain side, we simulate inventory strategies and logistics, recommending actions like rerouting shipments or building stock ahead of disruptions. Our optimisation also helps prioritize customers during tight supply and plans for operational risks like unit downtime. This modeling enables petrochemical firms to operate more efficiently, reduce waste, avoid stockouts, and boost profitability.

Many petrochemical companies still rely on market indices or negotiated contracts for pricing, but data-driven strategies offer greater precision. We help clients implement analytics-based pricing tools that use historical sales to estimate price elasticity by customer segment. For example, some customers may pay premiums for reliability, while others are highly price-sensitive. These models provide sales teams with optimal pricing recommendations regularly, replacing guesswork.
Our approach also accounts for volatility, suggesting when to pass on cost changes or hold prices. Forecast insights, like upcoming supply shortages, help identify opportunities to raise prices or secure long-term contracts. This nuanced pricing improves margins and creates more disciplined pricing processes, crucial in a high-volume industry.

Risk management is crucial for petrochemical companies exposed to feedstock cost swings and lagging product prices. We help design hedging strategies to protect margins by quantifying margin-at-risk through models that analyze feedstock and product price correlations. If natural hedges exist, less financial hedging is needed; if not, targeted hedging is essential.
Using copulas, we capture extreme scenarios like price spikes combined with demand drops. We evaluate hedging tools-futures, swaps, options, and recommend policies balancing risk reduction and cost. Stress tests include currency moves and demand shocks. This approach gives firms confidence to manage volatility and meet stakeholder expectations for predictable results.