PCA Presentation

Strategic view on rosin supply -

demand cycles and the impact

on speculation

resina

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

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– Behavioral Recommendations for PM

• Conclusion


Historic Gum Rosin Price DevelopmentComparison 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………:



• 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….


Actual Market SituationPrice 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


Actual Market SituationIs 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


Actual Market SituationPurchasing vs. selling strategies and vice-versa

• Troublesome for both, buying and selling side

• «do not speculate against the market, but cover you r 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


Actual Market SituationBehavioral Recommendations for PM

• 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 gui de you regarding purchasing decisions


CONCLUSION

• Price volatility will not be less in the future, bu t 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 ris k management and risk management always has the target to avoid losses (speculation)


resina

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