Strategic view on rosin supply - demand cycles and the impact on speculation
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In this paper, historic gum rosin price development will be discussed followed by the actual market situation and its price volatility vs. supply capacities and availability, whereas volatility will not decrease but rather further increase in the future. Following the market development and buying, one’s short term needs should avoid larger losses on speculation. The purchasing of raw material is a strategic act which has to be linked very closely with a consistent risk management, and risk management always has the target of avoiding losses.
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Strategic view on rosin supply - demand cycles and the impact on speculation
- 1. resina Strategic view on rosin supply - demand cycles and the impact on speculation
- 2. Quote Speculation is only a word covering the making of money out of the manipulation of prices, instead of supplying goods and services. Henry Ford Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 3. Content • Historic Gum Rosin Price Development – Comparison of demand and supply – 3 Phases in History To Consider • The 80s, 90s and new Millennium till YTD • Actual Market Situation – Price volatility – Is speculation and price volatility recommendable? – Purchasing vs. selling strategies and vice-versa – Recommendations for purchasing managers • Conclusion Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 4. Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 5. Historic Gum Rosin Price Development Comparison of demand and supply Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 6. Historic Gum Rosin Price Development Comparison of demand and supply Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 7. Historic Gum Rosin Price Development Comparison of demand and supply • CGR price from 97 to 04 influenced (or even dominated) by EU modifiers • Price stability interesting for EU modifiers but too low price level for CGR producers in China • Decision of Chinese producer to start offering more and more modified gum rosin instead of gum rosin • as a result………: Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 8. Historic Gum Rosin Price Development Comparison of demand and supply • Price elasticity of demand declined in China since no alternative raw materials besides gum rosin – No gum rosin from outside China (BGR, IGR etc….) – No TOR – No or very limited supply of HCR • as a consequence…. Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 9. Actual Market Situation Price volatility Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 10. Actual Market Situation Price volatility • Why is that? – Lower Stocks induce higher volatility in price – Growing domestic demand for Pine Chemicals in China – Increase of speculation activities from external influencer Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 11. Actual Market Situation Price volatility Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 12. Actual Market Situation Price volatility Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 13. Actual Market Situation Price volatility Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 14. Actual Market Situation Is speculation and price volatility recommendable? • Speculation is a normal thing generally speaking • Negative impact of speculation happens when: – sales party is selling even though being short quantity-wise – purchasing party is not buying even though being short quantity- wise Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 15. Actual Market Situation Purchasing vs. selling strategies and vice-versa • Troublesome for both, buying and selling side • «do not speculate against the market, but cover your needs month by month» – Often better to get continuous valuable suggestions than to speculate – Market Volatility between demand and supply will remain on a high level – And this volatility can appear on short term, even within the same day Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 16. Actual Market Situation Recommendations for Purchasing Managers • Proliferate this recommendation also to your dedicated sales team and specialists who are used to conclude long term contracts with fixed prices • in the end this is counterproductive if floating purchasing prices of raw materials will be higher than fixed sales prices of end products • Openly share your stock situation with your supplying partner giving him a better understanding of your actual situation enabling him to better guide you regarding purchasing decisions Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
- 17. CONCLUSION • Price volatility will not be less in the future, but rather increase (see other commodity market such as energy and other raw materials) • Follow the market and buy your needs on short term in order to avoid larger losses on speculation • Purchasing of raw material is a strategic act which has to be linked very closely with a consistent risk management and risk management always has the target to avoid losses (speculation) Alessandro Visconti, Petrofer AG, Switzerland - PCA Conference Beijing September 2011
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