LME Plastics Contracts Enhanced

The LME is to make further enhancements to the plastics contract specifications to provide a more accessible trading and price risk management environment.

The contract enhancements follow the increasing recognition in the physical markets of the LME contracts, particularly since the introduction in June 2007 of the regional contracts.

Commenting on LME plastics prices Mike Billings, Commercial Director Global Trading & Risk Management for Muehlstein (a Ravago Company) – the world’s largest polymer distributor – said:

"Prices on the LME North American contracts are reflective of the regional physical markets and customers are increasingly responding to the price transparency created by LME pricing. Muehlstein is pleased with the development of the LME prices as new participants now understand and are finally embracing what the LME has to offer."

As a result, and in consequence of the feedback received from market participants, the LME is introducing further enhancements, including:

• The removal of the shelf life for warrants which will increase the ability for warrants to be used by industry as liquid collateral for asset based loans/inventory financing and to support trade finance and long-term project financing activities.
• Simplifying the brand listing processes to better reflect industry practice and allow more brands to be listed, and create a faster more efficient system for organisations to list brands. Organisations other than producers and own brand distributors are now able to list recognised brands.
• The warehouse arrival requirement has been extended from 4 months to 12 months from production giving additional flexibility for market participants.

The changes, which take effect immediately, will be made for the eight plastics futures contracts (global and regional) the LME offers for polypropylene (PP) and linear low density polyethylene (LL).

Commenting on the announcement, Martin Abbott, LME Chief Executive said:

“Since the introduction of plastics trading on the LME we have seen in excess of 1.65 million tonnes traded. Now, as part of our product development process we are introducing changes to the contract rules which will enhance the accessibility of the Exchange to those industry participants who wish to use the Exchange for price discovery and risk transfer purposes.”

• The LME launched the world’s first exchange traded futures contracts for plastics on 27 May 2005 for PP and LL.
• Regional contracts for PP and LL were launched on the 25 June 2007 for Asia, Europe and North America.
• The Exchange offers a total of 8 plastics contracts for LL and PP. 1 global contract for each polymer and 3 regional contracts for each polymer.
• Trading at the LME in plastics takes place across three platforms: through openoutcry trading on the “Ring”; through an inter-office telephone market and through LME Select.
• The LME is the world’s premier non-ferrous metals market and achieved volumes of almost 93 million lots in 2007, an increase of 7% on 2006 figures and equivalent to $9,500 billion in monetary terms.

• Removal of shelf life on LME warrants
• Change from free on truck (FOT) to in-warehouse contracts
• Brand listing process simplified
• Merchant / Physical trader / LME member able to sponsor a brand listing
• Warehouse arrival requirement extended from 4 to 12 months
• Warrant create cut off date removed
• Withdrawal of proposal for discounting structure on aged warrants