Monday, January 24, 2011

Cyclic petrochemical markets and Pequiven strategy

The last message given by the SABIC Europe's CEO before the unification of all the SABIC organization was very clear:

"Although everybody knows that petrochemicals is a cyclical market, it still strike me the fact that we keep repeating the same mistakes over and over, building a plant during high poliolefins prices, and commisioning the plant when prices are low".

For me, that sentence describes exactly Pequiven's strategy. But first let's take a look of a typical cyclical behavior, and some advise of investment:

If you change the x-axis by years, you can easily spot where you should have invested, how much time you should spent building your plant to take maximum profit of your investment (risk is present, but under control).

Now lets take a look of Pequiven's strategy:

All investments were made when the oil (and therefore immediate intermediates) were over the 100 USD line, just at the top of the hill. Then, not surprisingly, prices tumbled and all investments stopped. And now, when oil prices are recovering, the Pequiven's investments are being resumed, as commented on the previous post.

This information is not at all a secret, and still many companies make this error, and regrettably Pequiven is among them.

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