Managing resin-buying risks

04/19/2011

The volatility of resin prices poses myriad challenges to today's processors, who also have many more tools to help them manage the volatility and inherent risk, but negotiating, understanding, and implementing these tools can be difficult. Tom Langan is a risk management and trading consultant at WTL Trading and Mathelin Bay Associates. Self-described as a "trader, risk manager, and teacher", Langan has 20 years of experience in financial and physical commodity trading and risk management. Below, Tom and Phil Karig at Mathelin Bay share their insights into the various hurdles and risks resin buyers face, and what they can do to overcome them.

Ability to pass along price increases to customers
Often caught in a squeeze between large petrochemical companies who will pass along price increases, no matter what, and large customers (often "Big Box"/Hypermarket retailers such as Walmart and Home Depot or Carrefour) who will not easily accept increases. If a manufacturer is unwilling or unable to pass along cost increases, the manufacturer could:

•Absorb them completely or partly and hope the market turns around;
•Hedge to eliminate or limit the impact of resin cost increases;
•Find less expensive raw materials and then offer the customer lower cost, alternative products....
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