Progress on the LME has been steady, rather than spectacular, with turnovers building up regularly. But the shelf-life of the contracts has been extended, first deliveries against an expiring month passed smoothly, and bottle-grade PET (polyethylene terepthalate) futures are lined up.
"They have had a decent run, but it is still a learning process for the audience out there. With new contracts it always takes three or four months to see a bulge in volume," Edward Meir of LME broker Man Financial said.
Polypropylene (PP) and linear low-density polyethylene (LLDPE) were a first for the LME, which had hitherto traded only non-ferrous metals, and for the world, where there are as yet no competing instruments in plastics. "We are relatively upbeat...Volumes increased in September and October has been better than September. We regularly see turnovers of 300 lots each day and on one occasion there were over 2,000 lots," James Yong, head of plastics at Natexis Metals said.
LME data shows 4,081 lots of PP traded up to end-September and 2,708 lots of LLDPE. June turnovers were 1,022 and 506 lots respectively, growing to 1,836 and 1,192 in September.
Plastics are derived from crude oil, then energy-based products - naphtha and ethylene. Main end-uses are in the transportation, packaging, consumer durables, textiles and wrappings, industrial and agricultural sectors.
Futures are a new concept for packagers, processors and converters, who up to now have based their contracts on opaque prices arrived at in specialist publications.
The LME's intention was to provide an overall industry reference price, and the correlation with physicals is running around 75 to 90 percent. But physical price differences between regions have yet to result in arbitrage trading. "We don't have enough of an Asian client base to make an input into the global reference price, but that is probably due to unprecedented circumstances this year," David Paul, global head of plastics at LME ring-dealer Refco Overseas said.
In Asia, polyolefins are around $1,100 a tonne, in Europe, $1,250, while in the US prices range between $1,500 to $1,800. November LME PP and LLDPE are currently around $1,245 (CHECK) and $1,240 (CHECK) respectively.
Paul said the extreme tightness in the US market reflected hurricane damage to Gulf oil producing facilities.
The LME is keen to add to its plastics suite next year, but the timing depends on outside factors. PET is favoured over PVC, as there is some uncertainty on environmental grounds of the long-term prospects of the latter.
"We are looking at bottle-grade PET ((polyethylene terepthalate), but we have not yet gone to the board with a proposal," LME Chief Executive Simon Heale said. That might not be until near the end of this year, so any decision to launch would not be until early next year.