What Secret Shipments Reveal
… and other tips on gleaning chemicals price information from EU aggregate trade data | by Brian J. McCormick, guest columnist
This July, Datamyne introduces US Best Price Benchmark© for chemical commodities, a monthly index of the best prices across global markets for a basket of 10 commodities chosen from the biofuel, petrochemical , metal and inorganic chemicals categories. Based on Datamyne’s US import-export trade data and developed in partnership with Chemcost Interactive LLC©, US Best Price Benchmark will be posted each month on the Datamyne homepage at www.datamyne.com.
Along with the US Best Price Benchmark, we are happy to introduce a new contributor to the Datamyne blog: Brian J. McCormick, founder and managing director of Chemcost. McCormick, who played a leading role in developing procurement costing and quality assurance for P&G, will be writing on ways to analyze and interpret trade data for pricing and sourcing intelligence. He begins by answering some questions about EU trade data:
Q: Can you really find very low prices within the EU’s aggregated trade data?
Chart 1* shows the reduced prices we identified based on Datamyne’s January-March 2013 EU data for the commodities that make up our US Best Price Benchmark for chemicals.
We’ll take ethylene and styrene as good examples of how we arrive at these results.
Ethylene and styrene are critical building block monomers used in polymer, elastomer and foam industrial production. They are produced from crude oil, in a production process that includes two major conversions. In the first conversion, the volatile crude oil fractions are distilled from crude oils into primary alkane feedstock fractions for petrochemical operations. In the second, alkanes such as ethane, propane, gas oils, and especially naphthas within Europe, are typically steam-cracked to produce ethylene, styrene and other petrochemicals.
We can calculate the prices of ethylene and styrene by using a simple production cost formula that starts with the price of crude – as in Chart 2.
Next, we use the Datamyne EU trade data to find average $/Mton comparative prices for ethylene and styrene in January to March 2013, shown in Chart 3. These price benchmarks are about 50% less than the average commodity market prices.
Finally, in Chart 4, we compare our benchmark monomer prices to the prevailing EU crude oil import price of $831/Mton CIF.
The monomers in these transactions have been traded at prices lower than crude oils. Since the monomers are the product of crude oil + two conversion processes, the less-than-crude prices are a strong indication of horizontal transaction patterns in the EU – for example, physical swaps or production sharing agreements of an end-to-end nature among crude oil and monomer producers.
There are shipment records that can be found in the trade data that lend support to the horizontal transaction scenario: secret shipments and zero-cost shipments.
Q: Can you actually find “secret” chemical shipments in trade data?
A: The short answer is yes. You can find secret shipments in Datamyne’s aggregated trade data for the EU. EU confidentiality rules permit the concealment of the trading partner country or the product traded or both. Here, for example, is an un-denatured ethanol export shipment from the Netherlands to a Non-EU Secret Destination (denoted SECR.EXTRA; a secret shipment within the EU would be SECR.INTRA).
We examined Datamyne EU aggregate data for January to March 2013 imports and exports of the 10 materials that make up our new US Best Price Benchmark. As shown in Chart 5*, there were secret shipments of 4 out of the 10, with both secret imports and export of one material, glycerin.
Chart 6 compares the average export price with the secret shipments price for sodium silicate, which is an industrial feedstock for the production of precipitated silica and water glass.
At $938/Mton, it is likely that the secret shipments were produced or handled in some special way, e.g., for advanced technologies. It is also theoretically possible that the shipments were not sodium silicate, but some higher value substitute, such as silicon metal.
Q: Can you really find “zero-cost shipments” in aggregated trade data?
A: Yes – if you know how and take the time to hunt.
Here’s a recent example of three ethanol EU export shipments from Belgium to France in 2013 recorded as “zero-cost” in right “Unit Value FOB US$” column.
We can speculate that the net weights (or volumes) in this example were simply incorrectly placed by Eurostat’s data managers into the supplemental quantity column, second from right.
If this was the case, then the shipment had roughly a 10% lower net price (see Chart 7). Perhaps the shipper’s objective was to limit lower price exposure to its competitors. Note volume and all price figures have been adjusted for ethanol density.
A second possibility is that these are just empty container return shipments from Belgium to France and should be dismissed from consideration as outliers.
A third speculative possibility is that these shipments represent some form of horizontal transaction, e.g., physical swaps or production sharing arrangements.
Alas, Eurostat aggregate data does not supply the details needed to absolutely confirm or rule out these speculations. Knowledge of markets and reference to other sources would be called into play.
Findings like these are by no means confined to the EU. Chemcost uses similarly-constructed unconstrained estimates, as in Chart 1 at the top, in other world markets to prioritize savings opportunities by region. Using methods such as the price discovery approach briefly described here, coupled with full access to Datamyne’s global trade data, enabled me to more successfully manage a large chemicals portfolio for many years at P&G.
* Charts 1 and 5 were updated on July 15 to correctly list “manganese dioxide” as one of the 10 benchmark commodities. (It had been incorrectly entered as “magnesium dioxide” in our original posting on July 11.) -Editor
About Brian J. McCormick
Brian J. McCormick was instrumental in developing procurement costing and quality assurance for P&G over a 34-year career. He is the founder and managing director of Chemcost Interactive LLC © (CI ©), a company offering research and analysis to support cost-efficient supply chain management.
Chemcost can assist Datamyne’s customers in identifying lower price opportunities through consulting and training. Chemcost also offers annual subscriptions to global and regional price bulletins on 225 commodities across 8 major chemical spend classes. Learn more and contact Chemcost at www.chemcostinteractive.com.
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
Date posted: July 11, 2013