LME: London Metal Exchange to end on plastics trading in 2011

The London Metal Exchange announced that it will call an end to its six-year effort to develop plastics futures contracts. Thus, the contracts for PE-LLD and PP launched in May 2005 will be delisted at the end of April next year; the last prompt date for all existing contracts will be Friday 29th April 2011.

Plastics futures trading was introduced on the LME on 27th May 2005. Despite a number of changes to the contracts and the subsequent launch of regional contracts in June 2007 no significant volume or open interest has been established and the exchange believes that this position is unlikely to change in the foreseeable future, says the LME. The Exchange has therefore decided to focus its efforts and resources on other opportunities.

Efforts to bring price transparency and hedging facilities into plastic resins business did not succeed
LME Chief Executive Martin Abbott commented, "The Exchange and its committee members have put considerable effort into this endeavour to bring transparency and hedging facilities to the plastic business. But we must now recognise that these efforts have not attracted sufficient volume business and the time has come to bring this activity to a close.”

During the past five years, the LME often affirmed, that they expected the plastics futures to follow sooner or later the path of the aluminum futures, which was lightly followed for several years before gaining acceptance and becoming a baseline for pricing in that industry.

The formal decision to delist was taken by the Board of the London Metal Exchange following a recommendation by the Executive Committee. This announcement follows the establishment of delisting procedures. The Exchange will waive the costs of withdrawing outstanding warrants from the LMEsword depository. Current open interest for all plastics contracts is 228 lots, each weighing 24.75t, out to March 2011.

Will there be future contracts for plastics in future?
Since the LME moved into plastics several other exchanges groups around the world have entered plastics trading as well:
Future contracts for PE-HD, PE-LLD and PP are currently traded on the floors of the Chicago Mercantile Exchange and the New York Mercantile Exchange as well as in the ClearPort system of their parent CME Group.

The Dubai Gold and Commodities Exchange has traded PE-HD, PE-LD, PE-LLD and PP as well, but the current status of those contracts is uncertain. Also the Multi Commodity Exchange of India Ltd. lists future contracts for PE-HD, PP und PVC.

At least in North America there was considerable interest of a significant number of market players in managing price risks by hedging and in getting more predictability in pricing by using future contracts. But as for the European market, such a system is obviously not yet accepted sufficiently.

About the London Metal Exchange (LME)
The London Metal Exchange is the world´s premier base metals market. It offers metals price risk management tools including futures and options contracts for aluminium, copper, tin, nickel, zinc, lead, aluminium alloy and NASAAC, steel billet and the minor metals - cobalt and molybdenum. For 2009, the LME reported a total value of trading was 7.41 trillion $, and the Exchange finished the year with 5.96 million t of material on warrant in 633 storage facilities across 39 locations globally.