A Brief Note On Polyethylene : How Does The Industry Work? Essay

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Rsm437 Assignment 3
Q1: how does the industry work?
Polyethylene is a petrochemical product that has been widely used in the plastic manufacturing, such as packaging, trash bins, and food containers. It is produced mainly from the polymerization process of ethylene, which is an ingredient derived from cracking crude oil and natural gas. There are three types of polyethylene: low-density polyethylene (LDPE); high density polyethylene (HDPE); and low linear density polyethylene (LLDPE), and each of them has distinctive commercial applications.
Polyethylene industry is considered as highly capital intensive since it requires large plant size to sustain the enormous production capacity and so as to fulfill the huge demand of the industry. Therefore, in order to be competitive and successful in this industry, the need for economies of scale is vital, since it contributes to greater revenues and sales volume of the company with a great proportion of saving in the costs. Also, the industry’s profitability is highly correlated to the company’s operating rate, which also refers to the capacity utilization rate of the company. The higher the percentage of the company’s total capacity is being used, the higher profit margins are accompanied by. However, notice that an excessive operating rate that over-utilizes the company’s available resources would lead to an oversupply of the production in the industry, which pulls down polyethylene’s market price and deteriorates the company’s

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