Plastics firms berate Metal Exchange over mould-breaking futures contracts

A row is brewing between the plastics industry and the London Metal Exchange over the market's historic foray into the sector.

The LME is launching two plastics futures contracts at the end of May 2005 - the first move away from metals for the 127-year-old exchange.

Neil Banks, director of strategy at the LME, said the contracts were intended to be an aid to the plastics sector. He added: "The main reason the industry needs them is that it is suffering ever-increasing price volatility cycles. There's a two-thirds chance that in any 12-month period the price will move by 20 per cent, and that's quite strong. They need some tools to manage the impact of that on their balance sheets."

Yet the LME is facing growing opposition from parts of the plastics industry over concerns that the two financial tools will in fact add to volatility and confuse customers.

Borealis, a Norwegian plastics producer with annual turnover of €4bn (£2.8bn), is an outspoken critic. "It is a volatile industry..." said chief financial officer Clive Watson. "But will the introduction of a futures market reduce that? You only have to look at the markets for oil and nickel and the like to answer that."

Mr Watson said plastic was also too complex a material to be traded as a futures contract, adding: "Where's the value proposition for the producers, the consumers and the end users? [Our customers] need value creation and innovation. They are far more important things than a futures market. It's a major distraction quite frankly, and an irrelevance. Who's going to benefit from this thing?"

Borealis will not be participating in the market. However, others in different parts of the industry are in favour of the new market. Rexam, the packaging giant, for example, intends to trade as a way of hedging raw material costs.

The contracts will focus on two types of plastic: linear low-density polyethylene, used in bags and bottles; and polypropylene, which features in textiles and car bumpers.

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