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MUMBAI: Two new commodity contracts, the world's first contracts in plastics - polypropylene (PP) and linear low-density polyethylene (LLDE) were launched on the LME on Friday.

Volumes in the new contracts are expected to pick up slowly as futures contracts are a new concept for much of the plastics industry, though there are high hopes that the contracts will attract discretionary and macro funds players seeking additional commodity market exposure, to provide liquidity and depth. Currently, both LLDE and PP are facing much weaker markets compared with the beginning of the year, but polyethylene appears more challenged as supply of propylene remains relatively tighter, said Ms Ingrid Sternby, analyst with Barclays Capital.

Plastics markets need to see a return of demand growth if further price weakness is to be avoided. The return of crude prices above $ 50 a barrel will adversely affect plastics producers' margins eventually, and further polymer price weakness is seen likely into the middle of 2005.While producers have otherwise been reluctant, it would be interesting to see whether concerns over contracting margins will encourage producers to use the new contract, the expert said.

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