Energy and natural resources
Commodity versus specialty chemicals
High-volume standard chemicals sold on price versus smaller-volume chemicals sold on performance.
Facts checked against sources onWhat does Commodity versus specialty chemicals mean?
Commodity chemicals, such as ethylene, PVC, ammonia and methanol, are made in huge volumes to a standard specification, so buyers choose mainly on price; profits swing with the cycle and depend on low cost and high utilization. Specialty chemicals, such as coatings additives, catalysts, adhesives and flavors, are sold for what they do for the customer, in smaller volumes, often with technical support, so they are priced on value and earn higher, steadier margins, but need research and customer service. Example: a commodity polymer might sell at 1,200 a tonne with a 10 percent margin (120 a tonne), while a specialty additive sells at 8,000 a tonne with a 25 percent margin (2,000 a tonne). Many chemical companies have sold commodity units to focus on specialties.
Where does it come up in case interview prep?
Related terms
- CommoditizationWhen products become interchangeable and compete mainly on price.
- Value-based pricingSetting the price from what the product is worth to the customer.
- FeedstockThe raw material fed into a process, such as naphtha or ethane for a chemical plant.
- Switching costsThe cost or effort for a customer to change supplier.
- Barrel of oil equivalent (boe)A unit that converts gas into barrels of oil by energy content, so oil and gas can be added together.
- Lifting costThe cost of producing oil or gas from wells that already exist, per barrel.
- Full-cycle breakevenThe oil price a project needs to cover all its costs, including building it, and earn its required return.
- Fiscal breakeven oil priceThe oil price a government needs to balance its budget.
Learn it in context
See Commodity versus specialty chemicals at work in a lesson from Chemicals, with checks as you go.
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