LME’s exit doesn’t mean the end of plastics futures

New York Mercantile Exchange (NYMEX) Research Director Dan Brusstar and the editors of petrochemical pricing industry newsletter, PetroChem Wire (PCW), say that the end of the London Metal Exchange's (LME) plastics contracts is "by no means the end of risk-management options for the plastics industry." The CME Group, which owns NYMEX, launched physical contracts for high-density polyethylene (HDPE), linear low-density polyethylene (LLDPE), and polypropylene (PP) in November 2008, with corresponding swaps contracts for these resins initiated in June 2010. Those swaps utilize PCW's price index as a benchmark.

In its statement, PCW and NYMEX noted that while the LME contracts generated relatively little interest, a fact that ultimately led to their delisting, companies have been trading forward plastics in recent months, "more than ever before", using swaps and futures contracts from CME Group. "We are looking to expand our reach into the plastics market," Brusstar said, pointing to the June launch of plastics swaps, which are financially-settled based on the PCW index price. He noted that the CME Group also plans to expand its clearing services to additional plastics products. Brusstar and PCW both point to PCW's index prices as key to the contracts going forward, saying, "With the trust of the market in the veracity of the PCW index prices, and CME Group absorbing counterparty risk, the resins markets have begun to enjoy what energy markets have enjoyed for years: risk-management options." Brusstar said the HDPE plastics futures contract, with delivery FOB Houston, recently exhibited record-high open interest equivalent to 18 million lb of HDPE for delivery through September 2011.  

There are also regional outlets for plastics futures, including in China through the Dalian Commodity Futures Exchange (DCE). In 2007, the DCE listed futures for LLDPE, adding polyvinyl chloride (PVC) in May 2009. In January 2007, the Dubai Multi Commodities Centre (DMCC) initiated exploratory studies ahead of a plastics futures contract launch on DGCX. In August 2009, the DMCC denied stories published by Dow Jones claiming that it would delay its plastics futures launch "indefinitely". In an Arabian Oil & Gas Journal article, the exchange said the launch of futures contract will be based on market conditions. Today, the exchange lists plastics and petrochemicals under its commodities markets. —mpweditorial@cancom.com