Chemical

The chemical industry is a large user of oil, natural gas, steam and electricity. Chemical companies also have a wide range of commodity exposures on the sell side. Benzene for example is an important industrial chemical product that serves as a building block for many other chemicals used in a vast array of products. Other examples of chemical products include foam, resins, synthetic fabrics, pesticides, rubber, detergents, and lubricants. An active commodity risk management policy in your chemical supply chain is crucial.

Business improvement across categories

Multiple category buyers (aromatics, olefins, utilities) profit from automated commodity market price analytical functions. Some of our clients use the KYOS portfolio & risk management system to manage a portfolio of benzene and/or hydrogen contracts. Each user is able to define a category specific portfolio of commodities. No more use of spreadsheets as all category buyers use the same integrated portfolio & risk management system. Futhermore, the Chief Procurement Officer has an up-to-date helicopter overview across all categories, securing compliance and consistency. You will save valuable time by automated sharing analysis across the organisation.

Cost savings – KYOS portfolio & risk management system

The rising costs of commodities can heavily affect your bottom line. Let’s take hydrogen as an example. Suppliers of hydrogen often link hydrogen prices to natural gas. This results in a transparent price structure. However, you probably have more chemical products or other commodities to consider! In the KYOS portfolio & risk management system users are able to compare several commodity price formulas in a split second. Calculating the best applicable formula takes less time then an Excel based analysis. Subsequently leading to significant lower costs with less time spent.

Managing commodity risks is inevitable for chemical companies, and having accurate and up-to-date information is crucial to stay ahead of competitors. Managing this crucial information in Excel has proven to be a pitfall for many companies in terms of costs, mistakes, hidden risks and potential fraud. ERP systems like SAP look backwards instead of to the future and cannot perform the required risk management calculations. The KYOS portfolio & risk management system can help you out with all these calculations. It captures years of experience in managing commodity risks of the chemical supply chain. Above all, it will lead to effective hedging strategies.

Managing cash-flow variance

The higher and more frequent market prices move up or down the higher its volatility. Volatility is often expressed in a percentage and can be calculated for e.g. interest rates, currencies (FX) and commodities. A highly volatile market price is not per definition a bad situation but you probably feel more comfortable with less volatile costs. Benzene has shown an average volatility above 30% in recent 5 years. This is more than 3 times the volatility of EURUSD in the same period. Calculating the volatility should be an integrated part of your benzene risk management strategy.

What can you store in our portfolio & risk management system? Of course your commodity budgets, but also consumption, inventory and contracts. The system will combine your physical positions with the automated market price analytics. As a result, it will provide you with clear insight in the current cash-flow and potential cash-flow variance versus budget expectations.

In addition, you will have a better insight in contracted and/or open positions, cash-flows and the associated risks. This is a clear added value for procurement, sales, finance and treasury. KYOS has extensive experience with the supply chain of chemical products on commodity risk management.

Fixed or floating prices – Benzene risk management

The benzene market is not that liquid, so managing the risks is a key task. Most contracts in this market are traded against floating prices. Procurement therefore needs to find a balance between security of supply and the risks of rapidly changing market prices  The KYOS portfolio & risk management system will help you to find your “risk and reward” optimum by simulating multiple cash-flow variances. Moreover, it will provide you with clear insight in the potential cash-flows given any variance between fixed and floating prices. Your benzene risk management policy will be built on sophisticated calculations combined with your market experience.

In short: start managing your cash-flow variances and subsequently lower your required working capital!

Solutions

• Portfolio & risk management / CTRM
• End-of-Day market price forward curves
• Live market price forward curves
• Cashflow / Earnings-at-Risk

Multi-commodity risk management

• Food
• Beverage
• Chemical
• Construction
• Metals
• Paper
• Transport
• Waste
• Automotive

Publications

• Commodity prices: Insight in Risks
• HedgeStar to become official distributor of KYOS Risk Management software