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The Future of the Chemicals Industry - Raw Material Volatility
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The Future of the Chemicals Industry - Raw Material Volatility

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An Overview of Raw Material Volatility

Oil and gas are crucial for the chemicals industry. The recent market raw material volatility has therefore proved difficult for chemical manufacturers. Shocks to both demand (from Covid lockdowns) and supply (the war in Ukraine) have caused oil prices to go from negative territory in 2020 to near all-time highs less than two years later.

Fluctuating prices of key resources impact all forms of manufacturing (and the economy as a whole). But chemicals manufacturers are particularly vulnerable. Not only do oil and gas serve as key raw materials to derive chemicals, but the industry is also reliant on energy and freight (both linked to fuel prices). To add to these challenges, thin margins (manufacturers of commodity chemicals can spend up to 80% of their revenues on purchasing inputs) fail to insulate manufacturers from shocks to input prices.  

While it might be convenient to assume that the industry’s reliance on fossil fuels will eventually wane, given efforts to curb the use of plastics and find greener alternatives, that is simply not true in the medium term. Rising demand in other areas – particularly emerging markets where per capita consumption of plastics is up to 20 times lower, and fertilisers up to 10 times lower than developed markets – has prompted the IEA to predict that “petrochemicals are set to account for over a third of the growth in oil demand to 2030, and nearly half to 2050.”

Navigating uncertain times will therefore prove to be a challenge for the foreseeable future, and the current environment points to the need for a new approach. Traditional forecasting methods are too retrospective - merely projections of previous trends. Meanwhile, most legacy forms of scenario analysis are too cumbersome and lack the agility needed to react to rapidly changing circumstances.

How Silico can help Navigate Raw Material Volatility

Our recently published e-book outlines why chemical manufacturers are adopting advanced simulation technologies to navigate volatility in oil and gas prices. The book explains the challenges with current market conditions, the limitations of legacy approaches, and the key reasons for using advanced simulation.

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Download a free copy here to get an insight into the kind of challenges we are helping our clients solve. While the e-book focuses on the chemicals industry, we look forward to explaining how Silico helps customers make better decisions across a range of use cases and industry sectors with simulation and digital twins. Feel free to contact us for more info or take up our 4-week challenge to see why we can help transform your decision-making.