Price Prediction as a Strategic Tool

It is not unusual, therefore, to find chemical companies making decisions on whether to continue ownership or investment in cyclical sectors on the basis of only a few years historic figures. Yet such short term data inevitably reflect performance over only a part of one cycle, and are potentially highly misleading about the average returns achieved historically (and likely to be achieved in the future) by a particular business unit If, however, companies were to attempt to predict price - with its implications for margins and returns - over the 15-20 year period 

We tested whether it was possible to make long term projections of chemical prices from an understanding of Hkely future reinvestment economics. Historical prices were compared with actual reinvestment economics for leader players in 10 commodity sectors in Western Europe over 20 years from 1980 - a period which contained at least two cycles. The sectors analyzed included major intermediates such as styrene and terephthalic acid, plus polyolefines and polystyrene. 

The conclusions (Fig. 16.6) were that, for many products, for example, styrene (Fig. 16.7), polystyrene, acrylonitrile, LLDPE, and PTA, the abihty of leader reinvestment economics to predict market prices was remarkably good. A difference between the two of less than USD 50 per toime on average was observed over the 20 year period, with a similar directional trend. For other products, HPDE and 

Long term predictive power of leader reinvestment economics Product 

Average 20 year difference between actual price and price predicted by leader reinvestment economics 

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