LAKE LAS VEGAS, NEV. — Plastics processors can benefit by locking in fixed prices via options and futures.
“Don't just hope for the best — take the money when it's there,” Tom Langan said at the 2015 Plastics News Executive Forum, Feb. 4-5 in Lake Las Vegas.
Langan, a margin management consultant with WTL Trading Inc. in Cypress, Calif., explained that options and futures long have been used by oil firms and by some chemical firms, and that they can be used by plastics companies as well. Several such contracts for polyethylene and polypropylene resins are offered on the Chicago Mercantile Exchange, using prices set by PetroChem Wire.
“You have the opportunity now, with oil prices collapsing, to improve your margins and sales dramatically,” Langan explained. “Processors can benefit by setting a fixed price, since resins typically make up 45 percent of product price.”
He cited the example of a PP processor making parts for an automaker being able to lock in profit by buying options at a range of prices. “Resin futures are fair forward prices,” Langan said.