Reducing earning volatility: a short course in energy cost risk management.(Deloitte & Touche)

Chemical Market Reporter, September, 2003 by Taylor, David

Since chemical manufacturers derive such a significant portion of finished product cost from energy commodities, it is simply impossible to minimize earnings volatility without first stabilizing margins. As the chemical industry is painfully aware, the underlying reason for this margin volatility is that the cost of natural gas has sharply risen, driven primarily by increasing demand and constrained supply.

The result is that an already difficult situation has turned into an urgent problem--one that threatens both chemical manufacturers and the US economy as a whole. Characterizing a doubling of natural gas prices over the past year, Federal Reserve Chairman Alan Greenspan called the situation a "very serious problem" and suggested "we are not apt to...

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