petrochemical trading with floating price

[stickooo]

Hi,

Our company trying to trade a new commodity. It's a petrochemical. The problem is the price is floating, and to be determined on average 5 days prior loading to the ship. So, for example the goods is loaded on April 20 then it means the price is an avg price from April 15-20.

My problem is, assuming I want to make the order now (March 18) in order to secure the inventory :
1. How to make an LC for this ? Since i am going to be a middleman on this, the L/C would be a transferable
2. I also confused on how to give the pricing to my buyer, because the price fluctuates quite a bit (3-6% per day is normal)

anybody has experience on this ?

thanks
Mike

[jmitra]

from your post, it appears that you already have a good idea on the issue. you are correct to say that you need to calculate the price of petroleum product based on their average price for a defined period of time. to deal with this specialized wing of international trade, the LCs usually have a price fluctuation clause. however developing a price fluctuation clause is not always that simple. In most of cases, the PLATTS quotations for various oil, gas are taken as the price indication or reference. it also includes some very technical terms and price calculation formula. for example, im putting a part of the standard price fluctuation clause -

"Price shall be in USD per barrel based on the average of mean of PLATTS MOPS quotations for..... cargoes as published in PLATTS Asia Pacific/Arab Gulf Marketscan for 5 issues, namely 2 issues immediately preceding, 2 issues immediately following...."

i am not going into much detail as the detail of the clause depends on the type of petroleum product we are talking about.

[picant]

Hi Pals,

is it possible to extend tolerance in price +/- 25% or more, tied to the official quotations, in order to issue a workable l/c?

Thanks

Ciao

[stickooo]

the commodity is MTBE. To complicate things, my buyer is using Singapore price as Indicative where my seller (US based) is using Rotterdam price as indicative. And both price are different. In addition, the buyer only want to deal FOB, whereas the seller want it to be CIF.

Any input ??

[cristiand969]

To make a credit of some sort workable and in acceptable form by the beneficiary the credit should include (I'm talking with such credits I'm currently dealing with) in additional conditions that: "the amount of this credit will automatically escalate/de-escalate according to Platt's Euopean Marketscan, without any further amendment from our part."
However, to have some sort of control of this operation IB should insert in LC the quantity which is to be delivered and not in general terms because the undertaking of issuing bank will be otherwise unlimited. Also a substantial margin should be considered by issuing bank as a collateral based at least on the statistical data of market price fluctuation proportionatelly with L/C validity, or other info IB is confortable with.

[SHAMEER]

YOU HAVE TO AVERAGE THE PRICE AND ALLOW TOLERENCE.

B.REGARDS