Sunoco 2008 Annual Report Download - page 25

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competitors, variations in the level of refined product imports into the United States, changes in product mix or
competition in pricing. In addition, our profit margins may decline as a direct result of unpredictable factors in
the global marketplace, many of which are beyond our control, including:
•Cyclical nature of the businesses in which we operate: Refined product inventory levels and demand,
crude oil price levels and availability and refinery utilization rates are all cyclical in nature.
Historically, both the chemicals industry and the refining industry have experienced periods of actual
or perceived inadequate capacity and tight supply, causing prices and profit margins to increase, and
periods of actual or perceived excess capacity, resulting in oversupply and declining capacity
utilization rates, prices and profit margins. The cyclical nature of these businesses results in volatile
profits and cash flows over the business cycle.
•Changes in energy and raw material costs: We purchase large amounts of energy and raw materials for
our businesses. The aggregate cost of these purchases represents a substantial portion of our cost of
doing business. The prices of energy and raw materials generally follow price trends for crude oil and
natural gas, which may be highly volatile and cyclical. Furthermore, across our businesses, there are a
limited number of suppliers for some of our raw materials and utilities and, in some cases, the number
of sources for and availability of raw materials are specific to the particular geographic region in which
a facility is located. Accordingly, if one of these suppliers were unable to meet its obligations under
present supply arrangements or were unwilling to sell to us, we could suffer reduced supplies or be
forced to incur increased costs for our raw materials.
•Geopolitical instability: Instability in the global economic and political environment can lead to
volatility in the costs and availability of energy and raw materials, and in the prices for refined products
and chemicals. This may place downward pressure on our results of operations. This is particularly true
of developments in and relating to oil-producing countries, including terrorist activities, military
conflicts, embargoes, internal instability or actions or reactions of governments in anticipation of, or in
response to, such developments.
•Changes in transportation costs: We utilize the services of third parties to transport crude oil and
refined products to and from our refineries. The cost of these services is significant and prevailing rates
can be very volatile depending on market conditions. Increases in crude oil or refined product
transportation rates could result in increased raw material costs or product distribution costs.
•Impact of environmental and other regulations affecting the composition of gasoline and other refined
products: Federally mandated standards for use of renewable biofuels, such as ethanol and biodiesel in
the production of refined products, are transforming traditional gasoline and diesel markets in North
America. These regulatory mandates, coupled with a structural expansion of production capacity for
such renewable biofuels, could lead to significant increases in the overall production, and available
supply, of gasoline and diesel in markets that we supply. This potential increase in supply of gasoline
and diesel could result in lower refining margins for us, particularly in the event of a contemporaneous
reduction in demand, or during periods of sustained low demand for such refined products.
It is possible that any, or a combination, of these occurrences could have a material adverse effect on our
business or results of operations.
Volatility in coal prices could materially affect our business and operating results.
Sales prices for coke production at most of our facilities reflect the pass through of coal costs. As a result,
the profitability of these operations is not impacted directly by the price of coal. However, coal prices are a key
factor in the profitability at our Jewell operations. The global economic slowdown has negatively affected coal
prices. In the event of continued decreases in coal prices, the results of operations and cash flows of our Jewell
cokemaking operation could be materially impacted.
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