10 July 2008 17:26 [Source: ICIS news]
(releads, adds buyer reaction and detail throughout)
By Edward Cox
LONDON (ICIS news)--Dow Europe’s intention to end plastic resins pricing based on a market index formula was not unexpected but could give the company greater control over its prices, buyers said on Thursday.
“Producers want to control variables but they can’t control ICIS, so they don’t like to be linked to something they can’t control,” said one buyer.
ICIS pricing, the global chemical market intelligence service, offers independent price assessments for key commodity chemicals that are widely used as benchmarks or price references in chemical transactions.
Dow’s new pricing system will affect low density polyethylene (LDPE), linear low density PE (LLDPE), high density PE (HDPE), polypropylene (PP), polystyrene (PS), acrylonitrile butadiene styrene (ABS) and styrene acrylonitrile (SAN) from 1 January 2009.
The company said that discontinuing the market index formula in Europe, ?xml:namespace>
“Dow is taking this action as part of a series of measures to begin to partly restore eroding margins in the face of unprecedented and unforeseen increases in feedstock costs,” Isidro Quiroga, commercial vice-president of Dow Basic Plastics for Europe,
“Discontinuing market index formula pricing will give us more flexibility to combat the volatility of these costs, which are impossible for us to avoid because of the current volatile high feedstock environment,” he added.
Buyers said that Dow’s announcement had not been entirely unexpected.
“It’s no great surprise, all producers have been saying this over the past two years,” said one buyer.
“Regardless of what they say, though, we still have prices fixed at the end of the month, and the end of the year with rebates,” he added.
Market index formulas, such as those from ICIS pricing, should be a reference but not an index, a Dow company source said.
“It’s not our aim to discredit [ICIS pricing], we want to bring the industry back into negotiation,” he said.
“There will be resistance so we will look for individual solutions,” he added.
One consumer said that 10-15 years ago everything was based on discussions which took the whole month but that it now was simpler to have indexing.
“Dow’s argument is to leave this behind but if it is dealing with a big consumer it may have to think twice,” he added.
Another said: “I don’t have a specific price index link with Dow but I can imagine they want to have a free hand to decide pricing.
"For buyers [price indexing] is like a guarantee, [it is] an official voice or an insurance policy that shows what is happening in the market.”
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