SUBSCRIBER NOTE CORRECTION: Clarification on S&P Global Platts decision to refine Polymer methodology

S&P Global Platts does not take deltas into account when assessing European polymer contracts and, in the absence of outright prices on contracts, Platts will take price direction from the spot market as well as relevant market intelligence. The following is a Q&A on the change.

1. Why has Platts decided to not reflect deltas in European polymer assessments?

In response to feedback, Platts is making this change to prevent sudden, non-market based adjustments of its polymer assessments in the future. Overreliance on monomer-related deltas over a period of time has resulted in the inflation of polymer contract assessments, eventually triggering a non-market based adjustment as price reporting agencies bring assessments back into line with real transaction levels. Platts is committed to stop this from happening in the future and ensure its assessment reflect prevailing transaction value.

2. The industry uses deltas and not outright prices for references in contracts. Why not just publish deltas or an assessment solely based on delta movements?

Platts has a duty to publish the most accurate price for polymer contracts. As Platts assessments are used for complex import, export and pricing models and financial analysis of the petrochemical sector, publishing an index that is disconnected from transactional value could distort its own and clients' analysis of the industry. Polymer contracts vary according to size, application, spec and location.

3. How can you publish just one price?

Platts acknowledges assessing bilateral contracts is challenging and is constantly working to improve its methodology. Currently, Platts has defined standards to which we normalize value for location, quantity and specification criteria. While Platts acknowledges many contracts lie outside of these criteria, it has and will continue to use information from all transactions and normalize such contracts to its standard. Suggestions to improve Platts methodology are always welcome.

4. What will the impact of the change be?

Platts expects minimum impact on its polymer contract assessments, as previously monomer-related deltas were only used as a last resort in the price discovery process and almost never in more liquid markets such as all polyethylene grades and polypropylene. Platts is confident it receives enough outright price indications to accurately and consistently assess all polymers.

5. What are your contracts based on?

Platts contracts are assessments of monthly contract prices for pre-determined annual volumes.

6. How do you assess contracts?

Platts is in regular contact with as many converters and producers as possible throughout the week to determine the agreed price of polymer deliveries in the current month. Platts receives buy and sell indications from these participants and assesses at the most repeatable level subject to normalization to its specification, location and volume criteria.

7. What do you do in the absence of outright contract price indications?

In the rare circumstance where this occurs, as in all other assessments, Platts examines a range of variables to evaluate whether the prevailing value has changed in the absence of outright indications. For the polymer markets these are the change in the cost of producing the good, which can be ascertained from the change in the price of the monomer; the current supply and demand balance of polymers in the market, which can be ascertained by inventories as well as changes to spot prices; as well as the change in the price of any related polymer.

8. How can you justify using the spot market to aid assessment of contract prices, when they are separate markets?

Platts recognizes that the spot and contract market are separate markets and as such Platts will only use spot price direction and not value to help assess contract prices. In the absence of outright contract indications Platts believes that spot prices are a reasonable indicator of the supply and demand balance in the European market, which in turn impacts contract prices.

Please watch Platts webinar recorded in January explaining the change in methodology:

http://player.piksel.com/player.php?p=l6739rrn&utm_campaign=17BR05EMEMPM_Meth odology%20Update%20T1&utm_medium=email&utm_source=Eloqua

Please send comments and feedback to pricemethodology@spglobal.com and petchems@spglobal.com For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will make comments not marked as confidential available upon request.