Resin makers and buyers interested in futures contracts will hear London calling early next year.
The London Metal Exchange - a 126-year-old trading market in London - hopes to begin offering such contracts for polypropylene and linear low density polyethylene in the first half of 2004.
"At first sight, this might seem odd," LME Chairman John Pizzey said in an Oct. 14 news release. "However, the more we looked, the more akin plastics are to some of our current contracts."
The LME handles more than $2 billion in transactions each year, mostly in nonferrous metals.
LME corporate affairs director Jonathan Haslam said by telephone that the contracts will be aimed at "producers and consumers within the usage chain who are exposed to the risks of adverse price movements."
Haslam added that PP and LLDPE were selected as LME's first plastics futures because of their global market nature, and their size and liquidity.
Firms such as Shell Chemical Risk Management Co. of Houston and Louis Dreyfus Energy Corp. of Wilton, Conn., have offered risk management programs including hedges and swaps for several years. More recently, firms such as Multifuels LP of Houston and R.W. Beck of Denver have entered the field. Haslam said LME's offerings will be somewhat similar to those offered by those firms, but LME is "a totally neutral exchange" governed and funded by its members, rather than by a single company or corporation.
Howard Rappaport, a PE analyst with Chemical Market Associates Inc. consulting firm in Houston, said LME will be "a high-profile platform for plastics."
"The LME is a recognized global exchange with a lot of visibility," said Rappaport. "This step is more recognition of the fact that these [resins] are globally traded commodities."
Jim Morris, a managing partner with purchasing consultants Resin Technology Inc. in Fort Worth, Texas, agreed, saying LME "is very much for real."
"If [plastics futures] are going to happen, it's going to be with someone like [LME] or the Chicago Mercantile Exchange," said Morris. "We'd welcome any new, creative tool that would level the playing field globally for our customers."
But Morris added that establishing a plastics futures market will take some effort.
"There are some challenges and barriers in plastics that don't exist in other markets," he said. "Plastics can be made with different process technologies and can have different additive levels. The truth is that polyethylene and polypropylene are all commodity and all specialized at the same time."
Morris and Rappaport said they are unsure of the impact that nonplastics investors will have on a futures market.
"The question that buyers and sellers have to ask is if they want a market where players can have no interest in the [plastics] market other than playing the game," Morris added.