Vasant, I wanted to keep you up-to-date on the redevelopment of forward curves for the suite of 7 plastics (ethylene contract, ethylene spot, propylene contract, propylene spot, polypropylene, HDPE, LLDPE). As you may recall, we talked about fitting all of the components into a VAR model and solving the system of simultaneous equations. Unfortunately, with a limited dataset (say 5 years or so), our degrees of freedom in such a model are dramatically reduced. Alternatively, Mauricio and I have decided to construct individual models for each of the plastics commodities while utilizing results from the initial VAR analysis as a guide. Based on the petrochemicals flowsheet, both propylene and ethylene are fashioned directly from raw materials such as crude oil, coal, and natural gas. In turn, polypropylene may be made from propylene while HDPE and LLDPE use ethylene as a raw material. Given this logical flow, we restricted our model specifications in the following manner (all price variables tested for stationarity--first difference used in all cases):

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Plastics Models