LONDON (ICIS)--One could be forgiven for thinking that the trading of petrochemicals over the internet had had its day.
The initial buzz surrounding online marketplaces like ChemConnect established in the late 1990's - and other sites whose names escape me - have faded away.
The petrochemical markets were, perhaps, deemed too conservative to embrace new technology; or, maybe, the sites tried to encompass everything and be everything to everybody. For whatever reason, the time was not right.
However, given the huge and increasing influence of the internet in all our daily lives, with every facet of business moving rapidly into the digital era, it cannot be a surprise that online petrochemicals market places have been revisited.
This is particularly the case, given the increasing desire for market transparency and the ever-increasing requirement for compliance.
Former European olefins traders, Cedric Villiere and John Clement founded Covalent AG, and launched www.covalentcorp.com with the key elements of liquidity and transparency in olefins markets in particular, in mind.
"In response to recurrent questions regarding a lack of liquidity and transparency, and with conversations regarding the markets becoming more and more of a concern, Covalent was born," Villiere said recently.
"Covalent has been driven by the industry," he added.
So just how did the business develop and why the focus on the somewhat niche European ethylene and propylene markets?
While another European online web-trading portal emerged in 2017, this has a broader scope. It covers the transaction and delivery of a range of petrochemicals and those with fewer challenges on the logistics and transportation front than olefins.
"That's our experience and where we have our contacts. We wanted constructive feedback from people we knew and could trust, the idea being to shake a little bit the old tree while focusing on the key elements of liquidity and transparency," said Villiere.
"Additionally, neither product is already being brokered so we would be starting with a clean slate and new ideas," he added.
Industry feedback drove the development of the platform from purely a matchmaking entity to an anonymised platform offering much more than just a broking service.
The Covalent platform is nimble, allowing players to set and fine tune all their buy and sell parameters.
Players can buy and sell both time and geographical swaps.
Payment terms and companies are already vetted on registration to the service "so there are no big surprises and there is confidence that you can’t be linked to someone you don't want to work with.
"Everyone sets their own parameters, that's the basic principle of the system. We didn't want any boundaries. We didn't want to mimic what players have already," Villiere said.
STARTING WITH ETHYLENE
Villiere and Clement started with the ethylene module, beginning development in May 2016, because there is one standard grade, trade flows are already well established and there is a narrow base of players. In that environment, it is easier to control who can connect.
The first ethylene trade on the platform came in September 2016.
Meanwhile the development of a propylene module was progressing with it going live in the second quarter of this year. Some upgrades to swaps will be included shortly.
"Propylene is a little more complicated. There are three grades, different modes of transport and so on, but more flexibility has been introduced," Villiere said.
Covalent charges a flat fee shared 50:50 between the buyer and seller as it is obviously critical to have a neutral position. There is no registration fee so players can hop in an out to check the offerings without committing to a transaction.
If a deal is struck, the system automatically generates a confirmation ticket for both parties - which can then be stamped and signed and the volume delivered as per the conditions of the deal.
While the level of interest amongst olefins players in Europe has been high, not all are totally convinced in the benefit of the tool.
"Why not just pick up the phone? If you are experienced in olefins you know straight away who to call to help support with your need," one player mused Similar thoughts were echoed by others in the market.
Covalent sees the platform as an additional tool for business. It is not taking away the importance of long-established relationships. Rather, it is helps ethylene, propylene players to streamline daily activities, increase their reach, and be more creative by challenging habits.
"People are busy, they don't have time to sit and think and to make sure they are not missing a better solution," Villiere said
And what of the future?
Currently Covalent is just an intra-European system but import and export capabilities for ethylene are planned. "It's a natural extension to go global, it's the next step," he added.