Making the right move

26 July 2004 00:01  [Source: ACN]

The Asian olefins industry has been through many changes. This time around, it faces increased price volatility because of the growing influence of greater China. Is it time to turn to hedging tools? Report by Rick Coles

 
ANYONE with even a passing knowledge of the Asian olefins industry would know that big changes are afoot in China.

The increase in Chinese demand for olefins and derivatives over the last decade has been nothing short of phenomenal. This growth has sucked in derivative products from the rest of Asia, the Middle East, North America and even Western Europe in ever-expanding quantities.

Self-sufficiency in the key derivative, polyethylene, has fallen steadily, almost halving over the past seven years.

Indeed, the rise in import volumes in most chemicals was so acute that many observers worried about China’s ability to continue to prosper in this manner, or even to pay for the level of imports involved.

In olefins, the solution was the so-called ‘big six’ cracker projects, 600 000-800 000 tonne/year crackers to be built as joint ventures with foreign (read ‘western’) companies. Well, we now know that, for the time being, the ‘big six’ has been reduced to the ‘big three’. These are, at last, about to reach fruition:

- the 600 000 tonne/year cracker in Yangzi near Nanjing, a joint venture between BASF and Yangzi Petrochemical, due to start up in Q2 next year;

- the now 900 000 tonne/year cracker in Shanghai, a joint venture (Secco) between BP, Sinopec and the Sinopec-owned Shanghai Petrochemical, due to start up in Q1 next year;

- the 800 000 tonne/year cracker in Daya Bay, Huizhou, Guangdong, a joint venture (CSPC) between Shell and CNOOC, due to start up in the second half of next year.

Nevertheless, even the start-up of all this capacity, along with the expansion of some of China’s own domestic crackers, will barely do more than stop a further decline in China’s polyethylene self-sufficiency.

Beyond the current ‘big three’ projects there are two more big projects and a whole raft of other possibilities:

- the Fujian 800 000 tonne/year cracker whose current foreign protagonists are ExxonMobil and Saudi Aramaco, the start-up of which is unlikely until late in the decade;

- the Tianjin 600 000 tonne/year cracker with Dow, unlikely to come to pass before 2010;

- a greenfield 600 000-800 000 tonne/year cracker in Guangzhou with ExxonMobil as a partner;

- a second new cracker in Shanghai with either BP or Dow as partner;

- a cracker in Panjin, Lioaning, in which Sabic might have an interest;

- a project with Atofina as the foreign partner;

- a cracker project by the Formosa Plastics Group.

With regard to the future of cracker expansions in China, only the names have been changed to protect the innocent.

There will certainly be a steady rise in China’s ethylene capacity in the foreseeable future.

Rather than speculating on the nature of this steady rise and the players involved, it is interesting to speculate on the nature of the fundamental changes that will occur in the Asian olefins industry over the next decade. In particular, will the way of doing business in the industry change and, if so, in what manner?

In the beginning (of Asian olefins) was Japan. Japan was the first country in Asia to have a substantial olefins industry. Indeed, at its peak in the mid-1980s, Japan’s capacity represented virtually two-thirds of the capacity of all of East Asia. This started to change in the 1990s. Building, particularly in South Korea and Southeast Asia, saw Japan’s share of the industry halve. But this is not the whole story.

While Japan may have declined in significance as a producer of olefins, it involved itself in the regional industry in other ways. Its trading companies play a significant, in some cases dominant, role in trade in olefins and derivatives within the region.

In the ethylene trade, Mitsui & Co, Sumitomo Corp, Marubeni Corp and Mitsubishi Corp extended their dominance of the sea-borne ethylene trade from the traditional small-ship movements within Northeast Asia to become the dominant supplier of ethylene to new Southeast Asian buyers.

They also built on their experience of exporting Japan’s surplus product to play a significant role in moving South Korean and North American polymer to the Chinese market. Moreover, Japanese producers and traders took equity positions in the growing Southeast Asian olefins and derivatives industry.

However, during the 1990s, when Japan’s dominance began to decline, South Korean trading companies and Chinese companies based in Hong Kong began to play very significant roles in importing olefins derivatives into China. Western traders also started to bring deep-sea product to the region.

Western producers (such as BP Chemicals in Indonesia, Malaysia and the Philippines, Dow Chemical in Malaysia and Thailand, Shell Chemicals in Singapore and BASF in Malaysia) took equity positions in Southeast Asian olefins and derivative projects.

In the current decade, Japan has not fared well, and probably will not do so. Its domestic capacity is stagnant, or even declining slightly, while, like some big western players, Japan’s trading companies had their fingers burnt by their Indonesian and Philippine investments.

Movement towards stronger and larger Japanese domestic players has been slow and inconsistent. The failure of the merger of Mitsui Chemicals and Sumitomo Chemical has not made the task any easier.

Japan is struggling to identify how to rejuvenate its ageing domestic capacity (or even to decide what level of capacity is appropriate), let alone how to keep pace with capacity expansions in China, the rest of Asia and the Middle East. Its olefins industry is in serious danger of being left behind and marginalised.

The major factor in the Asian olefins industry in the current decade will be the rise of greater China (the mainland and Taiwan).

Early in the decade, Taiwan embarked upon its first major olefins expansion for many years with the rise of the Formosa Plastics group. As well as the build-up of the new joint-venture crackers and derivative capacities in mainland China, many of China’s existing domestically owned cracker complexes will also be expanded.

Thus, the decade will see greater China rise in importance in cracker capacity terms from a position just below Japan to one in which greater China will have almost twice the capacity of Japan.

Second in importance will be the rise of western influence. Although western joint-venture crackers are scattered throughout East Asia, by the year 2010 there is still likely to be only one wholly western-owned cracker in the region (ExxonMobil in Singapore). Nevertheless:

- BASF will have entered the ranks of Asian-based ethylene producers.

- Shell will have added Chinese capacity to its long-term and successful joint-venture position in PCS in Singapore.

- BP will have risen, phoenix-like, from the ashes of its involvement in derivative production in Indonesia and the Philippines to add the jewel to its crown that it hopes and trusts will be its Shanghai cracker joint venture.

What will these changes in influence mean for the structure of the Asian olefins industry?

Japanese business practice is characterised by stability. Long-term thinking, cooperation within Japan and the extension of its tentacles as widely as possible outside Japan have been principles that served Japan well in its rise to become a world economic power in the years since 1945.

The principles were applied to the olefins industry, no less than any other.

Inherent in the success of the Japanese model is the strength of its domestic market. This in turn has been based upon high domestic prices, the high quality of goods supplied, and stable employment, but not on low labour costs.

Olefins manufacture is not labour intensive and the climate in Japan was, therefore, propitious.

Overall, the Japanese success had, as a cornerstone, the principle that Mr and Mrs Suzuki were prepared to sacrifice individual wealth, prosperity and standard of living to the growth of the common good – a principle possible only in a nation as homogeneous as Japan.

It was upon this stable picture of domestic bliss that the Japanese olefins industry spread its influence throughout Asia in the 1980s and 1990s.

However, as Japan’s influence wanes and greater China’s waxes, what can we expect?

If we look to polymer markets, we may gain an insight. By the end of the 1990s, China’s demand for plastics dominated Asian polymer markets and pricing. What resulted was extreme volatility.

While the US and Europe have monthly contract polymer prices that are widely accepted and relatively transparent, Asia has none of regional significance. The Asian polymer price has depended largely, indeed, almost solely, on the activity of spot markets in Hong Kong. The only discernible change is that northern Chinese markets, through entry points such as Shanghai, Ningbo, Tianjin and Dalian, are growing to rival the traditional role of Hong Kong. It seems unlikely that this will change anytime soon.

As greater China becomes a more significant player in Asian olefins, can we expect more volatility in Asian ethylene pricing? The likely answer is yes. Will Asia come of age and develop a monthly negotiated and transparent contract price for ethylene? Sadly, the likely answer is no.

There is little evidence that the rise in influence by western producers in Asian olefins production is prodding olefins markets towards adulthood. Westerners may have imported their technologies and capital into the industry, but they seem to have left their contract-price mechanisms at home.

In the last few years, we have seen the emergence of one major new western olefins producer in Southeast Asia and one western major with a finger in many Southeast Asian derivative pies (albeit in a position now largely eclipsed). It was hoped that a Southeast Asian olefins contract price (as the term contract price is known in US or Western European olefins markets) would emerge. It was not to be.

What does seem likely is that Asian olefins markets will become more volatile, reacting more to the whims of a spot market fuelled by ever-increasing players, none of which will ever again be dominant in the way that Japan was in the 1980s.

If this is the case, where is the Asian olefins industry to look for a model? It will not be to counterparts in the US or Western Europe. In Asia, the question will be how to cope with rising volatility and market fragmentation. In the US and Western Europe, the issues are how to maintain a credible arms-length contract price in the face of concentration of the industry into fewer and fewer players.

It is perhaps to the oil and refining industry that the Asian olefins industry must turn for guidance. Certainly, here is an industry with high capital requirements (refineries cost more than even crackers) and extreme volatility.

What, therefore, is likely to happen in the Asian olefins industry is the emergence of hedging tools. The oil industry could not function without paper and futures markets to manage risk. The Asian olefins market may find itself in the same position.

Many of the precursors are already present. There are producers, consumers and traders operating at arms length throughout the region. Organisations such as ICIS-LOR provide regular and widely accepted pricing information to give the market the necessary transparency. There are means such as CNI to inform market players about short-term developments and well-respected consulting firms to look at the longer term.

One significant difficulty for the olefins industry in adopting this trend is logistics. Transport of oil and oil products requires little in the way of specialist shipping – there are of course exceptions such as liquefied petroleum gas (LPG) and natural gas. Terminals are plentiful and volumes are such as to allow the growth of pipeline networks where applicable. The volume of physical trade is also high.

Ethylene (and to a much lesser extent C3, which can share logistics with LPG) is different. It requires dedicated ships and specialist terminals. Often, it is the supply/demand balances of these as much as the product itself that shape short-term market trends. Moreover, the arms-length physical trade in C2 will never reach that of even a relatively minor oil product, let alone something such as gasoline.

However, given that Asia faces increasing price volatility in the future, the trend may be inevitable. No refiner would consider investment in a refinery without proper commercial risk management. Investment in crackers is of the same magnitude and, if commercial risk increases, similar risk-management tools will be essential.

If a non-physical ethylene market emerges in Asia, the environment will change. At present, the future of the olefins industry lies in the hands of physical market players. The emergence of a paper market brings into play two new classes of commercial entity: speculators and financiers. The ‘Ginza cracker operator’ may one day rival the ‘Wall Street refiner’.

It is ironic that the very emergence of tools to manage market volatility and risk will produce greater volatility. The speculator and financier thrive on volatility in a way that is completely foreign to the staid petrochemicals manufacturer. However, the oil and refining industry has learnt to come to grips with this issue, and so too will the olefins industry when the need arises.

It has become axiomatic among consultants to observe that China will be the key to regional markets and supply/demand balances. But, equally, Chinese thinking, philosophy and business practices will come to dominate the Asian olefins industry. Moreover, a whole new type of player without any interest in physical plant or trade may come to have a significant role in Asian olefins affairs. These trends may represent far greater and more fundamental changes.

Understanding the terms

Derivatives: These are securities that derive their value from another physical asset. Examples of derivatives include futures, options, caps, floors and swaps. Derivatives can be both exchange and non-exchange traded (known as over-the-counter or OTC). Derivatives are designed to help companies hedge (protect themselves against the risk of price fluctuation) or as speculative investments from which profits can be made.

Futures: This is an agreement to buy or sell or a set amount of a commodity in a designated future month at a price agreed upon today by the buyer and seller. Commodity futures are traded on a commodities exchange and are used for both speculation and hedging.

Options: This is a contractual agreement that gives the holder the right, but not the obligation, to buy (call option) or sell (put option) a fixed quantity of a commodity at a fixed price within a specified period of time.

Swaps: This is a financial trade involving the exchange of two different pricing structures between users of a commodity. For example, Consumer A (who usually purchases a fixed-priced commodity) and Consumer B (a buyer of a variably priced commodity) would (through a broker) agree to pay for each other’s purchases. Consumer A thus assumes the risk of a variably priced commodity, while Consumer B gets price assurance.

Caps: They offer price protection should market prices rise above a ceiling price

Floors: They offer price protection should market prices fall below a floor price.

Collars: They offer cap and floor protection so that risk exposures are restricted to a price range defined by the company.

 

Ethylene: Hedging the future

John Richardson examines the viability of an OTC futures contract

THE Asian ethylene spot market, as anyone who is involved knows, is highly vulnerable to manipulation because of thin volumes. During some weeks, only a handful of trades take place that can sometimes be non-indicative deals, which nevertheless still find their way into assessments by pricing services.

The end-result is that you may find your contract pricing distorted by these non-indicative deals as the vast bulk of Asian ethylene contracts are settled using a heavy element of Asian spot pricing in formulas. And with only around 3% of the total Asian ethylene trade done on a spot basis, any spot deal can severely distort the market.

Manipulation has been the blight of Asian ethylene for at least the last two decades. At first glance it might seem surprising, therefore, that nobody has succeeded in getting a futures market off the ground for ethylene, given that you would have thought that there was a big pent-up demand among producers, traders and buyers for hedging. But the explanation could lie in the challenges facing Ginga Petroleum and its partners as it attempts to make the over-the-counter (OTC) futures-contract market a success.

The biggest challenge is achieving enough liquidity. Despite what could be large pent-up demand, petrochemical producers and traders are generally very conservative and many have little knowledge of how futures function. Ginga, a Singapore-based brokerage, has been surprised at the lack of even basic knowledge (which, I’m afraid, extended to myself and many of my colleagues until very recently) of futures markets during pre-marketing. In contrast, oil and naphtha players are well acquainted with futures markets. In oil, for instance, about 97% of transacted business is paper only.

Without sufficient liquidity, there is a danger that the OTC futures contract market for C2, which is registered in Kuala Lumpur, Malaysia, could be at best a marginal part of the ethylene business used by only a handful of traders without the involvement of the big producers and buyers. The producers and buyers have to be involved to make the market meaningful. And, of course, at worst the market might not survive if the volumes are insufficient to make enough returns for Ginga and their partners.

But whatever happens to the OTC futures market after its launch in Q4, this appears to be a pretty bold and innovative attempt to tap into a crying need. If it is successful then maybe the methodology, an explanation of which follows, could be used to set up futures markets for many other petrochemicals. Ethylene is not on its own in being vulnerable to easy manipulation. Propylene, butadiene and aromatics fall into the same category with spot pricing again playing major roles in determining Asian contract pricing.

How the market will work

To start at the very beginning, it is probably necessary to point how the ethylene OTC futures will differ from futures on a conventional commodities exchange.

On many conventional exchanges, the price at which business is settled at the end of any trading day is the last deal before the bell sounds. The result is that players pour into the market in the last few minutes of trading in an effort to drive the market in the direction that they want.

It also needs to be stressed that the OTC futures market is a pure paper market with no physical cargoes involved. However, players will have the option to negotiate and settle on the market and then move off the market to conduct some physical deals.

If a conventional exchange were set up for ethylene, the results would be quite amusing to watch for the short while that the exchange stayed in business. Because the ethylene market is so illiquid, and because it is dominated in Asia by a small number of traders, the opportunity for manipulation would be huge, resulting in very little participation by producers and buyers.

The level at which business will be settled will, therefore, be determined by an ICIS-LOR calculated daily ethylene price (called the EIX) that will be posted at the end of each day’s trading. The price will be 50% based on an average of the deals concluded on the paper market on that day and 50% on what has occurred in the physical market. In the event that there are no trades on the paper market and/or no physical deals or bids and offers, the previous day’s business will be used to decide the ethylene price.

What the players on the market will be doing is, in effect, gambling on what the ICIS-LOR ethylene price will be when their contracts mature. For instance, a seller might offer C2s at US$900/tonne cfr China to which a buyer responds at US$850/tonne cfr China, and they sign a contract on this basis.

For a deal settled at any point in the month, the initial maturity of a contract will be at the end of the next month in order to mirror the usual delivery period for ethylene of 16-45 days. However, players can opt to roll over contracts for up to five months after the month in which they have been settled. They can also opt to close a contract at any other time after it has been agreed, for instance, even after only three days if, say, a seller believes the market is about to turn against him and he wants to cash in his profits. In such an event, it will be the ICIS-LOR price at the end of that day that will be used to settle the contract.

If, however, players wait for the end of any month for maturity then the average ICIS-LOR price for the last three days of that month will be used for the settlement rounded up to the nearest 50 cents. In the example used above, if the end-August price of ethylene is US$900/tonne cfr China, the buyer will owe US$50 × 2500 (all transactions on the market will be 2500 tonne; this number was chosen to deter manipulation by small players because of the size of the financial commitment. and to mirror the physical market, as many actual cargoes are around 2500 tonne).

The other key element of the market, along with the use of a third-party pricing assessment, is that a clearing house will be involved in order to ensure all financial obligations are met and all deals are verified.

The clearing house, Bursa Malaysia Derivatives Clearing (BMDC), will require players to lodge US$250 000 in cash and US$250 000 in letters of credit as a deposit. There will also be an ‘initial margin fund’ that players will have to pay into, which will comprise U$150 000 per deal and a further ‘variation margin’ fund. All the main and sub-accounts will be opened by BMDC with Citibank in Kuala Lumpur.

The loser in any deal will first of all have money taken out of his ‘variation margin’ fund by BMDC to pay the other party. If this money is insufficient, BMDC will draw on the ‘initial margin’ fund. If there is still not enough on account to fully meet the obligation, or obligations, the BMDC will then dip into the deposit. Finally, as a last resort, money will be taken from the accounts held by the market’s other ‘special clearing participants’. If a player defaults on payment, he can be suspended from trading.

Special clearing participants are those that are allowed to trade on their own behalf or on behalf of others. For example, big Japanese traders such as Mitsui & Co will have sufficient financial muscle to meet the BMDC’s requirements, but a polyethylene producer may not. Mitsui could, therefore, trade on behalf of the producer. Financial institutions might also trade on their own behalf or on behalf of clients.

The second category of membership will be ‘general clearing participants’, which will not be allowed to trade on the market. Instead, a commission will be charged for providing the credit necessary for the smaller players to take part. Both special-clearing and general-clearing participants must have net tangible assets of US$1.5m in order to register with the market. Registration fees will also be levied.

Ginga will initially act as the sole broker for all the deals, although it is possible that other brokers will be allowed to offer their services if the market achieves enough liquidity.

Round-the-clock trading can take place. However, contracts can be presented to the BMDC for registration only between 10am and 12:30pm and 2:30pm and 5:30pm each day. Only deals that have been registered by the BMDC will be classified as having being transacted on the exchange. It is therefore only these deals that will be factored into the ICIS-LOR daily ethylene price. This removes the danger of, say, two traders getting together to make up a fictitious deal in order to manipulate the market.

Conclusion

Confused? I hope not. Try swimming. I did 20 laps in the pool the other morning and most of the above suddenly clicked.

The question now is whether enough industry players will take the plunge to both grasp how the market will work and have the confidence to participate.

Plastics: New tools of the trade

Malini Hariharan finds out if Asia is interested in plastics futures

IS THE Asian plastics industry ready to adopt a new way of doing business? The London Metal Exchange (LME) plans to launch plastics contracts by the end of this year, thus offering producers, traders, converters and end-users a vehicle to hedge against price volatility.

Initially, the futures contracts will be confined to linear low-density polyethylene (lldPE) and polypropylene (PP), but will gradually be extended to other polymers such as high-density PE, low-density PE and possibly bottle-grade polyethylene terephthalate.

Contracts will initially be for copolymer general-purpose film/blending grades of lldPE with a nominal melt-flow rate of 0.8 and with slip and anti-block additives. In the case of PP, it will be for homopolymer general-purpose injection moulding grades with a nominal melt-flow rate of 12. These will be the basic benchmark grades, which can be used to calculate premiums for other grades.

The idea for plastics futures originated from one of LME’s members. The exchange then spoke to a selection of producers, converters and, after more study, ‘we believed it was worth doing’, says Neil Banks, director of strategy at LME. While the response has been favourable, the names of the participating players will only be clear closer to the launch date.

LME’s plans have certainly stimulated curiosity in the Asian plastics industry, but the extent of involvement is as yet uncertain as many producers and traders confess that they are still not clear how the contracts will work.

‘We are studying it [plastics futures]. It will be useful as market transparency is weak and we need a mechanism to hedge our risks. But we have not yet fully comprehended how it will work. We understand some of the major western producers will be participating, which means there will be a difference in the way business will be done in the future. But as the business culture in Asia is different, we have to see if it will fit in our market,’ says one trader.

A second trader says most of the players in the Japanese plastics industry have no idea about futures and derivatives. And a third trader says: ‘There is no interest at all in Japan. I think it will take some time for the concept to pick up. If the plastics futures is to be successful, it has to first pick up in Europe and the US.’

Eventually, the large Japanese trading houses such as Mitsubishi, Mitsui and Itochu are likely to lead the way in Japan and in the rest Asia in propagating futures. These trading houses are already familiar with futures and the LME through their metals divisions. A Mitsui subsidiary, Mitsui Busan, is a category 2 associate clearing member on the LME while Mitsubishi, through its subsidiary Triland Metal, is a ring member. Both can act as brokers for plastics futures.

Besides fears about a steep learning curve, concerns have also been voiced about whether the introduction of futures would increase price volatility. And also whether the plastics market globally, and especially markets in Asia, are amenable to futures trading. Sceptics point out that there are lot of differences in the way plastics and metals are traded. ‘The LME system has to fit in with the way plastics business is carried out,’ stresses a third trader.

Banks agrees that some in the industry will be concerned about how futures will work. But they are confident that, through education, these concerns will go away. Events have been planned in Shanghai and Singapore in October to explain and sell the concept of futures trading.

Banks also recognises that there are huge differences between the world of plastics and the world of metals. For instance, plastics are more susceptible to changes in temperature, humidity and storage conditions.

But he says there are also many similarities. For instance, an aluminium ingot and polymer pellets are both industrial raw materials that are supplied in their raw form and have to be processed or shaped before they can be used. Plastics and metals also share end-users such as the automobile and the packaging industries, which use metals such as aluminium. As these industries are already familiar with LME aluminium futures, they are expected to be among the early adopters of plastics futures.

Eventually, though, liquidity and adequate representation of all segments of the plastics industry will determine the success of futures trading. And Banks says the LME is working to ensure wide representation.

As with metals, the LME is also committed to having a delivery mechanism against plastics futures. This is needed to obtain a price that reflects the market accurately.

‘It is important we have a price-discovery mechanism that reflects the real price. But there is a difference between the metals and plastics delivery mechanism. To ensure minimum chances of contamination, we have listed delivery points that have been acknowledged by the industry to be acceptable.’

Houston in the US, Antwerp/Rotterdam in Europe and Singapore/Johor in Asia have been identified as delivery points.

Some in the industry might wonder why Singapore and Johor have been selected when the major markets in Asia are in China and Hong Kong.

Banks explains that, while a good case can be made for having a delivery point in China, the country does not as yet meet the LME’s criteria for legal infrastructure and customs requirements.

‘Singapore and Johor are acknowledged redistribution and pricing points that can be used for reference. We are starting with three regional hubs, but our experience with metals shows that, as the contracts mature, new distribution points will be considered,’ he says.

Banks is unwilling to discuss projected trading volumes for plastics. ‘We expect volumes to be low for the first 6-12 months as people will take time to understand and test it [futures]. We do not expect producers to start hedging all their production immediately. The volumes will build over a period months. We are not looking at instant returns; we are in it for the long term,’ he adds.

If plastics futures on the LME take off, then other commodity exchanges around the world are likely to follow. Already the National Commodity and Derivatives Exchange (NCDEx) of India is doing a preliminary study on futures trading for ldPE and hdPE. The study is likely to be completed in the month or two after which contract specifications are completed. ‘As it is an innovative idea, we are looking closely at its viability. We want to be doubly sure that it will work,’ says an NCDEx source.

The exchange has already had initial discussions with international and domestic brokers. However, some of the local polymer producers say they are not yet fully aware of NCDEx’s moves. The futures will be restricted to local players as Indian regulations do not allow overseas companies to participate in the exchange.

And NCDEx may not stop at ldPE and hdPE. It has also received requests for futures trading in synthetic fibres such as polyester staple fibre, which will be studied later.

If futures are established, the plastics industry will have an option to price their product differently by relating it to the benchmark grade that is traded on the exchange. Also, they may no longer have to rely on pricing services or consultants to determine the market price.

Lack of transparency in pricing and the desire to hedge against price volatility have been used to justify the need for futures. The industry agrees, but it will take time for Asian players to warm up to this new way of doing business.

LME plastics contracts - some details

- Contracts will be tradable for each month to 15 months forward

- Contracts will be deliverable by the transfer of plastics warehouse receipts through the LME’s
electronic system

- The size will be 24.75 tonne per contract lot

- The product will be deliverable in 25-kg bags, 55 bags per pellet, each pellet with shrink/stretch hood and 28 pellets per lot

- Delivery points will be in LME-approved facilities in free trade zones/fiscal warehousing regimes in Houston, Antwerp/Rotterdam, and Singapore/Johor.

- Pricing will be on the basis of free on truck at delivery point, tax and duty unpaid. In Johor/Singapore, delivery will be free in container at delivery point.

- The trading platform will be open outcry in the Ring, LME’s electronic system, and by telephone.

- The major currency for trading on the Ring and the electronic system will be the US dollar. But trading and clearing are also allowed in euro, Japanese yen and sterling pound.

- The minimum price fluctuation will be US$0.01/tonne, which is equal to US$0.25/contract

- The official price will be established at 1600 hours, while the closing price will be established at 1700 hours





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