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With the introduction of the London Metal Exchange (LME) regional contracts for polyolefins in late June, polymer analyst Sebastian Castelli, Société Generale Corporate & Investment Banking (London), says the processing sector has gained a powerful tool for pricing and hedging. Although weak during the first weeks of trading, Castelli says the lack of physical resin in an extremely tight market curbed the flow of physical material through the exchange mechanism.
Those traders who did partake of the regional contracts discovered representative and transparent price levels for the regions involved, Castelli says. The major gains from this launch are both a ‘cash price and regional spot prices for Western Europe, the U.S. Gulf region, and Asia, he says. Prior to this launch, the LME published only a single global price, which Castelli says was not able to represent the price of the individual main trading regions. The main implication of the new regional future prices is that they allow plastics industry stakeholders to manage price risk on a regional basis, he says.[email protected]