The risk of formula prices for plastic converters

This analysis is based on the real case of a monomer, which we will not disclose, as the goal is to raise awareness among plastic converters about the importance of fully understanding the value chain of the polymer they purchase and the significance of receiving proper guidance

2019 was a challenging year for the analysed monomer, weaker than anticipated demand and new global capacities,? triggered increases in EU27 imports from countries with greater competitive advantage. These factors put downward pressure especially on spot price leading some market participants to reevaluate traditional contractual agreements, as contract prices lagged behind spot market prices

They do not refer to the published contract price, but rather to the one resulting from subtracting the bilaterally agreed discounts.

There was, and still is, a clear interest in keeping the published contract price as high as possible, as it serves as a reference/formula for setting polymer prices between raw material producers and plastic converters. This is the key point, and the analysis focuses on it

We began our detailed analysis by observing ?that illogical movements were taking place. We analyzed the data in detail, and the results were surprising.

Major changes have taken place in the differences between monomer published contract prices and real monomer price. On average, the differences went from ≈13% in the period 2014-2019 to ≈22% in the period 2020-June 2024, and as you can see in the graph, the trend is still increasing.

The impact in the period 2020-2023 was around € 2.3 billion

Second Semester 2024: A period of paranormal phenomena?

• During the last week of July (when the contract for the following month is negotiated), the spot price of monomer rose by approximately 41%, pushing the contract price upwards. Immediately after the contract was published, it began to drop rapidly, falling by around 25%.
• At the end of August, and during the negotiation period for the September contract, the same unusual phenomenon occurred. In the last 2-3 days of the month, the spot price rose by 13%, the contract closed slightly lower, and the spot price started to drop sharply, now down by around 20%.
• Naturally, we are very eager to see if this unusual phenomenon repeats during the last week of the current month.