← Business Metric: Industry Specific (Industrials & Materials) (all topics)
Formula pricing lag (Q-1/M-1)
What it is
Carbon black is sold to tyre makers on formulas that reset quarterly or monthly using the previous period's feedstock price. The lag means today's selling price reflects last quarter's input cost
It protects the spread over a full cycle but not within it
Impact on industries
- Removes directional commodity risk over time, so the producer earns a conversion margin rather than speculating on oil
- Creates timing gains and losses that swing reported quarterly profit without any change in operating performance
- A sharp input rise compresses margin for a full reset period, which can be a quarter of the financial year
- Analysts must read carbon black earnings against feedstock direction, since a strong quarter may simply be a favourable lag