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Kevin L. Boyle, Consulting

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New Metrics for Financial Analysis of Petrochemical Markets Released by Kevin L. Boyle, Consulting

Financial analysis of petrochemical markets and companies can be challenging. The correlation between macroeconomic indicators and financial results for petrochemical producers is difficult to recognize. The White Paper: New Metrics for Financial Analysis of Petrochemical Markets (available at introduces three key metrics for the financial analysis of petrochemical markets.

Houston, TX, October 04, 2011 --( While market analysis fixates on ethylene and ethylene prices, it is only an intermediate. The merchant market for ethylene represents about 5% of the ethylene produced. The more salient analogy is that producers buy feedstocks, like ethane, and sell derivatives, primarily polyethylene. The margin captured between these two points reflects producers gross profits.

Since the markets and market drivers for ethylene derivatives are not related, prices and margins have their own dynamic within each derivative and sub-market within the derivatives. Consequently, the margin between buying feedstock and selling the derivative changes continually.

To gauge the profitability of an integrated ethylene producer the difference between purchasing feedstocks, converting them to ethylene, then converting the ethylene to a derivative and selling the derivative, must be measured. This exercise yields the true value of the ethylene produced. What follows here is an index of this calculation for each month from January 2006 through September of 2011, with January 2011 as the base month (=100).

The first quarter of 2011 was a good one for producers, very profitable. The second quarter was even better. This index reflects these results showing the index value rising from 100 in January to 160 in March of 2011, then 266 in June of 2011. And while the near term fate of the petrochemical industry has been eulogized many times over the past few months, the reality will likely demonstrate something different.

The complete White Paper available with my compliments from fully explains this index and discusses the other two metrics—ethane frac spreads and the Modified Sharpe Ratio and VaR results.

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Kevin L. Boyle, Consulting
Kevin L. Boyle

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