Track Critical Petrochemical Price Movements

Transcription

1 Track Critical Petrochemical Price Movements March 2012

2 Presenters PetroChem Wire Kathy Hall Executive Editor Telvent DTN Ray Asif Product Manager, Energy Trading

3 AGENDA Overview of spot markets development for petrochemicals How petrochemicals markets now trade and continue to evolve How daily chemical pricing can be used for data analysis in the DTN/Prophet X

4 The Road to Transparency Chemical pricing in the US has historically lacked specific transparency Many US chemical markets operated with a monthly contract price Newsletters focused on export prices to represent the spot market

5 The Road to Transparency Ethylene and propylene were particularly difficult to view as spot markets because they are gases, and are delivered by pipeline. Without a gas storage hub, participants were reluctant to report spot trades, because they would be to a specific delivery location (such as delivered Point Comfort ). For PE and PP, which are solids, newsletters focused on export prices to represent the spot market but if the arb wasn t there, the price was notional.

6 The Road to Transparency When spot market trades are infrequent and each deal is very specific, they demonstrate little relevance to the overall market. Having very little correlation to other markets, risk management options for chemical markets was historically not a viable option.

7 The Road to Transparency Over the past few years, several chemical hubs have opened up the spot markets. Ethylene: Williams storage at Mont Belvieu Propylene: Enterprise storage at Mont Belvieu Polyethylene & Polypropylene: Houston warehouses

8 The Road to Transparency A hub enables a commodity to trade frequently and with confidence of its basis. Well-known US hubs include Henry Hub (nat gas), Cushing (WTI) and Mont Belvieu (NGLs). A hub mentality is what is developing around the US chemical markets.

9 The Road to Transparency Hubs create a trading environment where liquidity can grow and the focus is on the price, not the players. A robust cash market enables a swaps market to exist.

10 The Road to Transparency Increase in upstream transparency Ethylene hub increased spot market liquidity CME/NYMEX ethylene futures launched 2009 Propylene hub has opened at Mont Belvieu CME/NYMEX PGP futures launched 2011 Newsletters reflect the increase of liquidity & transparency

11 The Road to Transparency As new players are drawn to hub markets, such as ethylene and propylene, FORWARD markets emerge Different types are trades are seen such as spread trades, index-based trades, exchanges, and multi-month strips

12 Liquidity: Increasing MM LBS 9000 Spot Ethylene Total Volumes 2004-Present '04 '05 '06 '07 '08 '09 '10 '11 '12

13 Liquidity: Increasing 34 million pounds of Mar 2012 delivery -- traded down from $0.68/lb to $0.645/lb 37 mm lbs of delivery Apr through Dec markets are clearly backwardated 12 million pounds in rolls -- further evidence of backwardation One week in the ethylene market Trade Date Price Delivery Delivery location month 5-Mar 0.65 Wms June 6-Mar Wms Mar 7-Mar Wms Mar 0.56 Wms 4Q Mar Wms Mar Wms Apr 0.64 Wms Apr Choc Apr-May Choc May bw Wms Mar/Apr 9-Mar Wms Mar Wms Mar Wms Mar Choctaw Mar 0.69 Choctaw Mar bw Choctaw Mar/May 9-Mar 0.57 Wms 3Q Wms 3Q Wms 3Q Wms May 0.69 Choc May 0.69 Choc May

14 Liquidity: Increasing Volume on NYMEX contracts: Ethylene 670 Propylene 1,128 Polyethylene 263 Polypropylene 110 It s not natural gas (yet!) but is performing about as well as natural gas did in its first year.

15 Transparency and Forward Trading A forward curve reflects prices for a commodity you can lock in today for delivery in the future A forward curve is not a forecast!

16 Forwards, Futures & Forecasts Polymer and monomer markets have historically relied upon price forecasts as their primary method to manage risk.

17 Forwards, Futures & Forecasts $0.50 $0.45 Ethylene: Oct 2010 delivery $0.40 $0.35 $0.30 $0.25

18 Forwards, Futures & Forecasts Markets that have typically functioned on a this-month or as-needed basis are actually trading the final month of a contract that has been in play for (usually) a year Participants are now trading the 2H 2012 market and are looking at the 2013 market The future ain t what it used to be. -Yogi Berra

19 Forwards, Futures & Forecasts Forecasts still have relevance that s why everyone listens to the predictions. But that s the same as putting on a forward position. Trading the forward markets through futures contracts relies on technical analysis as well as forecasts as to where a contract could ultimately expire

20 Risk factors for risk management Liquidity Will I be stuck in my position? Performance Will my counterparty flake? Index Is my benchmark reliable?

21 The reward of a low-risk index Confidence and facility of commerce Feasibility of risk management tools Transparency creates possibility not bankruptcy! Do not be afraid

22 PetroChem Wire: A low-risk index PCW has been used as a cash market benchmark since 2008 for the ethylene and propylene markets PCW is becoming more popular in the cash polymer markets PCW is the only place to find daily forward curves for Ethylene, Propylene, PE and PP

23 Sample of PCW Forward Curves C2 C3 C4 C5 Ethylene PGP HDPE LLDPE HoPP HD Chi LL Chi PP Chi Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

24 Resin swaps complete the supply chain Crude/Nat gas NGLs Monomers Resins

25 DTN ProphetX World-class market data workstation with Pre-Trade Risk Analysis and Integrated Order Routing

26 What is ProphetX? PX is a real-time market data management solution for energy and commodity traders Key Features Comprehensive view of historical, spot and futures, charts and news indexes via linked displays Order execution via ultra-fast and stable exchange connectivity Robust and reliable commodities data delivered via state-of-the-art, multi redundant ticker plants and quote servers Advanced tools and analytics including calculated spreads

27 Value to Customer Increase revenue: Market data is readily available when user is ready to access/trade Decrease cost: We pro-actively manage multiple data feeds at the best value possible Increase efficiency: PX can be accessed from wherever and whenever Reduce errors: We provide clean and automated data

28 PetroChem Wire in ProphetX

29 Why in ProphetX? Chart your PCW data including Ethane, Ethylene Mt. B-Wms and HDPE BM FOB Houston

30 Why in ProphetX? Access news information relevant to the market data

31 Why in ProphetX? RTD/DDE Links to Excel ProphetX has the ability to link your PCW data and data from other sources to Excel via RTD or DDE. In addition, using a DTN Excel add-in users can convert prices into different currencies and / or change prices into different units of measurement

32 Commodities List of Data Sources Amerex Brazilian CEPEA CME Group Chicago Board of Trade Chicago Board of Options Exchange CFTC DTN Rack Energy Information Agency (EIA) ICE Futures Kansas City Board of Trade Minneapolis Grain Exchange NYMES NY Commodities Exchange PetroChem Wire Brazilian Mercantile & Futures Exchange Bursa Malaysia Information Dubai Mercantile Exchange Eurex NYSE LIFFE Euronext London Metal Exchange Singapore Exchange Lanworth USDA Equities and Options News American Stock Exchange Dow Jones Indexes NASDAQ NYSE Euronext Options Price Reporting Authority Montreal Exchange Toronto Stock Exchange Dow Jones DTN Coming Soon European Energy Exchange (EEX) Nord Pool Spot and Others SAFEX, ZCE and additional USDA BOVESPA, DCE, ICEX

33 Questions? PetroChem Wire Kathy Hall Executive Editor DTN ProphetX Ray Asif Product Manager, Energy Trading