Many of the nation's leading petrochemical companies, who were forced to buy large quantities of scarce raw materials on the high-priced spot market during the 1974 oil embargo, are shunning the spot market today.
"We learned a lot from 1974," said O. S. Andras, director of the hydrocarbons department of Dow Chemical Co.
Andras said that most chemical companies who buy feed stocks such as benzene and transform them into products such as plastic have entered into fixed contracts with oil companies or producing countries to supply nearly all their production.
In 1974, before the embargo and the sharp run-up in oil prices, many petro-chemical companies had been content to buy 20 to 30 percent of their feed stock requirement in the spot market, Andras said.
Joseph Cahill, director of hydrocarbons for Celanese Chemical Co., said that although oil companies have put chemical companies on allocations (in much the same manner they have allowed gasoline or diesel fuel). "Right now we are able to get all the products we need."
Harold May, vice president for materials and logistics at E. I. DuPont de Nemours and Co., said his company has made a decision not to buy products in the spot market.
"Historically, when you chase higher prices, you support higher prices," May said.
May said that in 1974 petrochemical companies reacted to the shortages of feed stocks as if they were going to persist, paying lots of money for feed stocks to put into inventory.
Many petrochemical companies were burned when the shortages disappeared and feed stock prices came down sharply.
This time, he said, DuPont is refusing "any orders that we don't think we can fill" without buying high-priced feed stock on the spot market. However, he conceded, if the shortage should get worse and DuPont needed more petrochemicals to keep its plants running, the company might be forced to change its mind about going to the spot market.
Like gasoline prices, petrochemical feed stock costs have risen dramatically since the first of the year.Early this year a feed stock like benzene cost less than a dollar a gallon. Today under contract benzene costs about $1.40 and is expected to rise between $1.50 and $1.60 on July 1.
But on the spot market benzene costs as much as $2.50 a gallon.
Celanese's Cahill said his company is not resisting the high prices in the spot market, but is buying as little as possible. "If we had to buy substantial quantities, I'm not sure what we'd do," he said. "If it gets to a certain point, I guess we will resist."