Anyone who thinks the industry's heavy hitters aren't interested in the plastics futures set to debut in May on the London Metal Exchange should take a look at the membership of the LME Plastics Committee.
The 15 companies on the list include resin giants Dow Chemical Co., Basell Polyolefins and BP Chemicals, packaging leader Rexam plc and distribution powerhouse H. Muehlstein & Co. Inc. Most likely, those firms aren't working with the exchange just to get a free lunch once a month.
``We're pleased with the general level of reaction so far, but there's still a lot of work to be done,'' LME strategy director Neil Banks said Oct. 26 at K 2004 in Dusseldorf.
LME will debut futures May 27 for polypropylene and linear low density polyethylene. Investing in futures can help offset buying risks, Banks said. Futures prices will be established by the LME based on supply and demand.
In the late 1990s, several firms - including Shell Chemical Co., Louis Dreyfus Corp., Koch Industries Inc. and Enron Corp. - tried to start similar programs, but met little success. Banks thinks LME can succeed because of its history and experience of more than 125 years trading nonferrous metals.
``The profiles of the plastics and metals industries are similar,'' he said. ``Both industries start with a raw material taken out of the ground, which is then refined and stored in warehouses before being processed and sold to consumers.''
While there's been some skepticism around the LME effort - resin makers Borealis A/S and Saudi Basic Industries Corp. have expressed doubts - Banks points to the example of the aluminum industry. When LME began offering aluminum futures in the late 1970s, he said, aluminum giant Alcoa threatened to fire any of its salesmen who were participating in the process.
Now, according to Banks, the aluminum market ``couldn't survive'' without the transparent pricing provided by the LME. To cap things off, John Pizzey, then Alcoa's executive vice president, ended up serving a one-year term as LME chairman in 2003.
The reluctance expressed by Borealis and Sabic is ``a reasonable place for them to be,'' added Banks, a 15-year LME veteran.
``It would be great to have them on board, but it's our job to convince them that our program is good for them,'' he said.
LME will measure the success of its initial plastics offerings before considering additional resins and grades. Its initial PP is homopolymer general-purpose grade for injection molding, while its first LLDPE offering is a butene-based, general-purpose copolymer for blown film and blending.
The exchange is conducting seminars to explain its process to potential customers. Events are set for Nov. 17 in Houston, Nov. 19 in Chicago and Nov. 23, in Antwerp.