LME prices may become plastics markers, Soc Gen

07 February 2007 12:13  [Source: ICIS news]

LONDON (ICIS news)--Changes planned by the London Metal Exchange (LME) for its plastics futures contracts may mean that LME prices become fully accepted as the pricing standard in the plastics industry, Societe Generale said on Wednesday.

The exchange may also consider the launch of a US domestic contract in the near future, the bank added in a note to clients.

This would help address the expected differential between the LME’s proposed North America regional contracts and domestic US domestic prices, it said. The North America contract is expected to more closely match US Gulf export/import prices.

The LME plastics numbers could be used by the industry globally in 87% of its transactions, the bank’s analysis suggested.

The industry currently relies on as many as 30 sources of ‘discovered’ prices in commercial transactions.

The exchange confirmed on Monday plans to launch on 25 June extensive spot trading capability in it plastic futures contracts and regional North America, Asia and Europe contacts for linear low density polyethylene (LLDPE ) and polypropylene (PP).

The proposed system will provide the market with a more continuous price curve, Societe Generale said, increasing the number of available prompt or settlement dates from 15 currently to more than one hundred.

The LME expects to capture and reflect spot pricing in the US Gulf, Asia and Europe with the launch of the six new regional contracts.

“If successful the LME pricing mechanism, may move from the almost 0% representativeness of the current global contract to 66-87,” the bank added.

Global futures contracts for LLDPE and PP have been trading on the exchange since the end of May 2005

Uptake of the newly based LME numbers could be highest in Asia, Soc Gen said, and lowest in the US domestic market where domestic and US Gulf import/export prices can differ wildly and by as much as 30%.

The plastics industry is supporting the LME in finding a transparent mechanism for the region, the bank said.

“This may end in the development of a US Domestic contract in the near future,” it noted.

By: Nigel Davis
+44 20 8652 3214

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