Monday, March 14, 2005

Chickens and eggs

There is a philosophical concept: the category error. This sort of thing happens when people try to understand something new but don’t quite get it. It may also apply to some of the unanswerable questions: What is the meaning of life? What does yellow taste of?

I think that you might realise that you were labouring under one just after the ‘Oh, I see’ moment when the penny drops.

When it comes to the London Metals Exchange’s plan for a futures market in polyethylene and polypropylene, I wonder if both sides aren’t suffering from something like this.

Large parts of the polyolefins-producing industry believe that their products are not commodities and therefore that they won’t take part in it. To be fair, polyolefin producers spend a lot of time and effort convincing their higher-added-value customers that their products are unique and offer distinct benefits. They are worried about the price of poor polymer driving out the margin for good polymer

The LME believes that just like pork bellies, orange juice, copper and aluminium, polyolefins are commodities and that a price for three polypropylene and one polyethylene grade will set a base price for the industry. Companies can then negotiate premiums on this for the benefit their products bring to consumers and for delivery processes.

Neither are completely right. But does the polymer industry really need another price discovery mechanism?

Blogwise - blog directory