LME poised to launch spot plastics contracts

02 February 2007 10:53  [Source: ICIS news]

LONDON (ICIS news)--The London Metal Exchange was expected to announce on Friday the long awaited launch of a new spot element to its linear low density polyethylene (LLDPE) and polypropylene (PP) futures contracts as well as the start-up of three or more regional plastics contracts, brokers said.

An LME spokesman told ICIS news an announcement on the contract changes could be expected soon. LME chief executive, Martin Abbott, said in early January that the exchange would in 2007 effectively relaunch its plastics contracts.

The exchange is likely to introduce daily prompt dates for the LLDPE and PP contracts and possibly extend them forward.

The current monthly contracts run 15 months forward with settlement prices set at the end of each month. Cash settlement and delivery is made on the third Wednesday of the following month.

This structure has led some players to use the futures exchange more as a vehicle for physical delivery rather than as a tool to manage their overall business risk.

A vibrant market would attract more paper trade and greater upstream and downstream industry user activity, brokers said. 

The LME’s plastics advisory committee has been looking at the possibility of launching regional plastics contracts that might better reflect activity in these niche cash markets.

It was unclear whether three or more contracts had been proposed to run alongside or linked to the global LLDPE and PP contracts.

The LME’s futures contracts for LLDPE and PP were launched at the end of May 2005 but suffered from poor user interest and liquidity.

Abbott said in December that the contracts were under review and that the exchange was working closely with clearing house LCH Clearnet to introduce new  elements to the two plastic contracts.

By: Nigel Davis
+44 20 8652 3214

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