Shell remains confident in industry-led chem trading floor

21 May 2001 14:22  [Source: ICIS news]

The launch of Shell’s commodity chemicals exchange has been delayed but the company remains confident that its concept of an industry-led trading platform for petrochemicals remains robust.
The fact that the main participants in the exchange would have to guarantee liquidity has been a stumbling block for this industry-led e-business internet site and question-marks hang over its ultimate launch. However, Shell says it is still working on developing the exchange. There is growing interest in the capabilities this exchange would provide, Shell says, particularly in the area of financial risk management.

Initially, Shell was working on the exchange idea with eight potential participants, other chemical companies and financial partners. Trading on the exchange was expected to start in the second quarter of 2001 in North America and later in Europe. The site was expected to be a neutral exchange for the trading of physical and paper petrochemical products. The participants would provide the physical liquidity in trades of products such as ethylene, MTBE (methyl tertiary butyl ether), styrene and methanol. The idea was that the exchange would allow anonymous trading of forward contracts for later physical delivery, futures contracts for financial settlement and options that allow either settlement mechanism.

Shell is still backing the exchange idea and says it is focused on developing a broad enough base of support to assure success when the exchange rolls out. A final list of founding partners is still being developed and the exchange remains in the design stage. Shell’s model is that the exchange will be open to all traders who meet a minimum set of qualifications. Founding partners will be fully identified at a later stage.

The Anglo-Dutch energy group is obviously keen to lever its expertise in chemicals risk management and oil commodities trading into the mainstream petrochemical industry. Houston-based Shell Chemicals Risk Management (SCRIM) has been successful in recent years in developing the sort of concepts and paper trades that help chemical companies manage raw material and product flows. The exchange would be a low-cost channel to market for suppliers and give buyers a more efficient means of discovering prices.

The prospects for chemical industry e-commerce have changed markedly over the past 12 months as the dot com sector has gone into steep decline. Companies say they remain convinced that large proportions of their business will be conducted over electronic channels in future. The big question is how long the transition takes and what influence different e-based markets eventually have.

German chemicals group BASF said only recently that it expects to sell half its plastics and fibres output over the internet within three years. The company, along with Shell and 20 other chemical producers and distributors, is a founder member of the industry-led e-business site, Elemica.

Elemica has proved that chemical companies are seeking greater control of their e-business transactions and are not inclined to give business, and margin, away to e-business independents or to support ventures in which they do not have a major say. Elemica will not be a chemicals trading site as such but first and foremost a hub that helps link companies operational and transactional systems. Only once these links are established will moves be made to offer participants the opportunity to actually conduct sales through the Elemica website.

It appears as if Shell has run up against similar issues with its ambitions to develop a neutral trading and futures platform for petrochemicals. Chemical companies are very wary of giving anything, let alone too much, away and this applies particularly to the sort of upstream products that Shell has in mind for its trading and futures platform. They each need to see a clear advantage of subscribing to and participating in trades carried out over e-business websites before they will even consider taking part.


By: Nigel Davis
+44 20 8652 3214



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