Derivative Instruments

9 Months Ended

Sep. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

Commodity Risk Management

The Company uses derivative instruments to reduce price volatility risk on raw materials and products as a substantial portion of its raw materials and products are commodities whose prices fluctuate as market supply and demand fundamentals change. Business strategies to protect against such instability include ethylene product feedstock flexibility and moving downstream into the olefins and vinyls products where pricing is more stable. The Company does not use derivative instruments to engage in speculative activities.

For derivative instruments that are designated and qualify as fair value hedges, the gains or losses on the derivative instruments, as well as the offsetting losses or gains on the hedged items attributable to the hedged risk, were included in cost of sales in the consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012. As of September 30, 2013, the Company had 10,710,000 gallons of feedstock forward contracts designated as fair value hedges.

Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in cost of sales in the consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012.

The exposure on commodity derivatives used for price risk management includes the risk that the counterparty will not pay if the market declines below the established fixed price. In such case, the Company would lose the benefit of the derivative differential on the volume of the commodities covered. In any event, the Company would continue to receive the market price on the actual volume hedged. The Company also bears the risk that it could lose the benefit of market improvements over the fixed derivative price for the term and volume of the derivative instruments (as such improvements would accrue to the benefit of the counterparty).

Disclosures related to the Company's derivative assets and derivative liabilities subject to enforceable master netting arrangements have not been presented as they are not material to the Company's consolidated balance sheets at September 30, 2013 and December 31, 2012.

The fair values of derivative instruments in the Company's consolidated balance sheets were as follows:

	Derivative Assets
	Balance Sheet Location	Fair Value as of
		September 30, 2013		December 31, 2012
Designated as hedging instruments
Commodity forward contracts	Accounts receivable, net	$	3,208	$	13,032
Not designated as hedging instruments
Commodity forward contracts	Accounts receivable, net	2,541		1,395
Total derivative assets		$	5,749	$	14,427

	Derivative Liabilities
	Balance Sheet Location	Fair Value as of
		September 30, 2013		December 31, 2012
Designated as hedging instruments
Commodity forward contracts	Accrued liabilities	$	—	$	399
Not designated as hedging instruments
Commodity forward contracts	Accrued liabilities	2,090		13,295
Total derivative liabilities		$	2,090	$	13,694

The following tables reflect the impact of derivative instruments designated as fair value hedges and the related hedged item on the Company's consolidated statements of operations. For the three and nine months ended September 30, 2013 and 2012, there was no material ineffectiveness with regard to the Company's qualifying fair value hedges.

Derivatives in Fair Value    Hedging Relationships	Location of Gain (Loss) Recognized in  Income on Derivative	Three Months Ended September 30,						Nine Months Ended September 30,
		2013			2012			2013			2012
Commodity forward contracts	Cost of sales	$	(232	)	$	(515	)	$	(342	)	$	12,345
Hedged Items in Fair Value    Hedging Relationships	Location of Gain (Loss) Recognized in  Income on Hedged Items	Three Months Ended September 30,						Nine Months Ended September 30,
		2013			2012			2013			2012
Firm commitment designated    as the hedged item	Cost of sales	$	236		$	515		$	15		$	(13,546	)

The impact of derivative instruments that have not been designated as hedges on the Company's consolidated statements of operations were as follows:

Derivatives Not Designated as    Hedging Instruments	Location of Gain (Loss) Recognized in  Income on Derivative	Three Months Ended September 30,				Nine Months Ended September 30,
		2013		2012		2013		2012
Commodity forward contracts	Cost of sales	$	4,854	$	249	$	9,897	$	(783	)

See Note 10 for the fair value of the Company's derivative instruments.