Most organic chemicals are made from oil or natural gas, so crude oil prices feed through the chain into what you pay. The link is strong for products close to crude, such as solvents and basic petrochemicals, and weaker for products many steps away, such as dyes or specialty chemicals.
The effect also arrives with a delay. Plants buy raw materials ahead of time, and price changes travel step by step down the chain.
How the chain works
Crude oil and gas are refined or cracked into basic building blocks: benzene, toluene, xylene, ethylene, propylene and methanol. These become intermediates, such as nitrobenzene, aniline or phenol. Intermediates become dyes, agrochemicals, polymers and specialty products.
At each step, the raw material is a smaller share of the final cost. Labour, energy, yield, effluent treatment and the maker's margin add more. So a large move in crude may become a small move in a finished specialty product.
Other raw materials matter too
- Inorganic inputs such as sulphuric acid, caustic soda, chlorine and ammonia move with their own supply and demand.
- Coal and gas prices affect plant fuel and steam costs.
- Imported intermediates, often from China, carry exchange rate and freight risk.
- Packaging materials, especially HDPE drums and steel drums, follow polymer and steel prices.
- Exchange rates change the rupee cost of imported inputs and the dollar value of the quote.
What this means when you buy
Quotes for chemicals near the bottom of the chain often have short validity. Suppliers may hold a price for days rather than weeks when markets are moving. For longer contracts, buyers sometimes agree a formula that adjusts price to a published feedstock index. That works best when the feedstock is a large share of the cost.
When a supplier asks for a price rise, ask which input moved and by how much. A good supplier can explain it. Then check the claim against public market reports for that input. For more on comparing offers fairly, see comparing chemical quotes.
Sharp moves in one intermediate can have causes other than oil, such as plant closures. Our guide to why intermediate prices change covers this.
Planning for volatility
You cannot control feedstock markets, but you can plan around them. Know which of your products sit close to crude and which do not. For the close ones, order in larger lots when markets are calm, or agree index-linked pricing. For the distant ones, focus on the plant's efficiency and reliability, which matter more than oil. Watch exchange rates as well, because a weaker rupee can offset a rise in input costs for a dollar buyer. Ask suppliers to give you early notice of input changes, not only new quotes.
Next step
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