HOUSTON (April 10, 11 a.m. EDT) — Electronic-commerce firm ChemConnect Inc. is working overtime to make sure customers get the most out of buying and selling chemicals and plastics through its World Chemical Exchange.
In one recent Web-based sale, chemical producer Sterling Chemicals Holdings Inc. of Houston increased its profit margin on styrene monomer by $275,000 in an 85-minute trading session. That session included five overtime periods, ChemConnect Chairman and Chief Executive Officer John Beasley said at CMAI's World Petrochemical Conference, held March 28-30 in Houston.
Sterling started the session looking to sell styrene for 40 cents a pound, 1 cent above the March contract price. In the first 54 minutes of the session, which was set to last one hour, Sterling received six bids that drove the price up to 41 cents per pound.
When a bid was received in the final five minutes of the session, it automatically triggered a five-minute overtime trading session. After four additional overtimes, Sterling closed the sale at 41.5 cents per pound.
Sterling had invited eight bidders to participate in the exchange, but the bidders were unaware of each other's identities. The five-overtime session was far short of the record 35-overtime session that went on between a pair of bidders earlier this year.
Beasley believes buyers and sellers will pursue on-line exchanges aggressively to take advantage of market conditions. Buyers will look to reduce their costs when supply is long, while sellers will use on-line exchanges to increase revenue in tight markets.
"Supply and demand will still control pricing," Beaskey said. "But the impact will happen much faster."
"It's always tough to get a price increase," he added. "It can take months or longer. But through an exchange, you can increase margin and very rapidly establish market price."
Beasley also predicted that brand names "will be more important than ever" as Web-based trading develops in chemicals and plastics markets, since buyers "need to have confidence in the product and customer service."
Beasley does not see businesses such as his replacing traditional chemical and resin distributors, saying that distribution "will always be an important component — you need logistics in place to get materials there."
San Francisco-based ChemConnect announced its plans to go public earlier this month. The 5-year-old firm posted $127,000 in sales in 1999 while losing $14.7 million. The company has 33 charter members — including GE Plastics, Dow Chemical Co. and BASF Corp. — which own a combined 33 percent of the firm.
ChemConnect collects a percentage of each transaction on its site, split equally from the buyer and seller.
The firm also continually monitors its members and participants to make sure they have the materials they want to sell on the exchange. Beasley estimated ChemConnect currently has a 20 percent member rejection rate, although he added that number has been dropping in recent months.