London Metal Exchange (LME) plastics futures are reflecting regional physical prices two months after their launch, global commodity broker Man Financial told Reuters on Tuesday.
"We are seeing that regional prices for physical material are starting to move into line with the LME price, which is very encouraging," Man Financial analyst Edward Meir said.
"We have found good correlation with the US markets and reasonable correlation with Asian markets," he said, referring to a survey of world plastics prices carried out by the firm.
He added that European physical price data and LME prices were out of step. "We might have another look at a comparative data set for Europe."
The LME, the world's largest non-ferrous metals market, launched two plastics contracts at the end of May - linear low-density polyethylene (LL) and polypropylene (PP).
Prices initially fell, with PP hitting a low of $905 and LL touching a floor at $915. "Prices have been very strong after that initial dip," Meir said. "Plastics feedstock prices are related to energy prices and they have gone higher, so we are getting some cost push pressure on prices."
September NYMEX crude oil earlier on Tuesday touched a record high of $64.27 a barrel. "At the same time we are getting higher demand from the United States, Europe and parts of Latin America and as a result inventories at producers have fallen sharply," Meir said of the plastics market.
September delivery polypropylene was quoted at $1,122.50 a tonne and LL was at $1,100 on Tuesday.
"We have had feedback from people looking at our study - some have agreed with our assumptions, while others have suggested that other data could be more representative."
Meir said interest in the contracts was developing among consumers and producers, who initially took a wait-and-see attitude to the LME products.
One of the main purposes of the contracts was to allow producers and consumers to lock in future prices via hedging strategies.
Meir said trade volumes in July had been thin, in part due to the traditional summer slowdown in the northern hemisphere.
Exchange-traded volumes for both contracts totalled less than 100 lots on Monday, while turnover for LME flagship copper was 97,000 lots and for tin, the least traded metal in the complex, turnover was 1,500 lots.
But Meir added traded volume for other LME contracts such as aluminium had remained low for four or five months after they were introduced before the market had embraced them.
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