PHILADELPHIA (Oct. 16, 4 p.m. EDT) — Risk management, once the province of high-pressure trading floors, is moving to the relative calm of online sites offering hedges against fluctuating resin prices.
Major futures trader Enron Corp. launched a trading Web site in November 1999. The company buys and sells natural gas and energy, as well as commodities, over its portal.
Now, two more online trade exchanges are about to enter the speculative world of resin. CheMatch.com Inc., based in Houston, signed an agreement in September with the Chicago Mercantile Exchange to develop an online futures-exchange site.
And fierce competitor ChemConnect Inc., based in San Francisco, will offer its own risk-management site for commodity resins and chemicals, said ChemConnect President Phil Ringo, interviewed Oct. 10 at the E-Business for Chemicals and Plastics 2000 conference in Philadelphia.
Enron's site, among the first to offer online risk management, is performing about 2,300 trades a day in a variety of industries, said Douglas Friedman, director of Houston-based Enron Global Markets LLC.
CheMatch expects to begin online futures trading by the middle of next year, said Vice President Kevin Wenta at the same conference. While Ringo did not go into detail, he said ChemConnect expects to be selling futures sooner than that.
All of which could create some sparks in a new arena for an old activity, still known for the over-the-counter trading of pork bellies and stock indexes.
The Chicago Mercantile Exchange is entering the electronics age after years of ignoring it. In March, the exchange formed an e-business unit, before choosing CheMatch as its exclusive electronic trading platform.
Wenta at CheMatch explained what the relationship will mean to online trading of chemicals and resins.
"You don't have to pick up the phone or fax to a trader in a spot market," Wenta said in an Oct. 10 speech at the conference. "You can come in or get out whenever you please. A boom/bust cycle creates certain volatility, and we can provide a tool (to manage) the entire risk through a supply/demand mechanism."
The companies plan to create a menu of products that customers can use to take a position in the market. Surfers to the CheMatch site will have the ability to hedge on resin futures, buying at a set price while guarding against swings up or down.
"It brings more predictable earnings to conduct a forward price curve and allows companies to better plan capacity expenditures," Wenta said.
All transactions will pass through a clearinghouse set up by the Mercantile Exchange for validation, Wenta said. He called CheMatch's service the first neutral online trading sites for chemicals and resins.
"In other models, you're not guaranteed the best price," Wenta said in response to a question comparing CheMatch's exchange to that offered by Enron. "The only way to do that is through a neutral exchange."
Enron officials disagreed. While Enron offers a proprietary product, the company's large volume of trades yields competitive prices, Friedman said. And while CheMatch probably would charge a transaction cost for each trade, Enron's site has no fees, he added.
Instead, the company gains sales through the difference between the predicted and the actual resin price, he said.
Enron trades such items as polystyrene and linear low density polyethylene over its site at www.enrononline.com. All told, using both online and off-line trading methods, the company handles about $1 billion in online sales a day, Friedman said.
About 60 percent of those transactions — and 45 percent of the contract volume — occurs online, he said. Plastics is one of the company's fastest-growing segments, he said.
"There's a growing overall perception of risk associated with plastics," said Friedman, citing rising resin prices this year. "It was slow at first gaining the interest of the (plastics) industry, but it's not that way anymore."
Other trading companies tackling resin futures include Houston-based Shell Chemical Risk Management Co., Louis Dreyfus Energy Corp. of Wilton, Conn., and Koch Industries Inc. of Wichita, Kan. Wenta said CheMatch will pursue those companies — as well as Enron — to trade over its neutral exchange.