Price Wise: It's time for a new paradigm in plastics pricing

09/29/2011

In last week's Price Wise [Better Resins Futures], I proposed replacing CME's moribund resins futures contracts with spread contracts against crude oil futures. Crude oil prices drive resins prices (see discussion on my website, and here and here in Price Wise). Crude oil futures are transparent, fair, liquid, option-able, and are executable months and years ahead. Converting resins prices to spreads against crude oil makes them transparent, fair, liquid, option-able, and controllable years ahead - everything they aren't now. For purchasing managers, that means no more wondering or concerns about price 'fairness' for spot purchases and, similarly, no more vulnerability to an index price for contract purchases.

Regardless of what CME does with its resins futures contracts, a spread price to crude oil opens a wide avenue for processors (and suppliers) to effectively and economically manage resins prices vis-à-vis product sales prices and, therefore, protect and improve profit margins.
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