London's Liffe has become the first European futures exchange to offer derivatives designed to help businesses protect themselves against unforeseen weather changes.

Liffe is hoping that the new futures will encourage companies to manage weather risks as assiduously as their counteparts in the US, where the weather futures market is worth $9bn (�6.4bn) a year.

By buying weather futures, a company is effectively betting that the average temperature in a given future month will fall within a range that would hit profits or generate extra expenses.

If this bet comes off, the company's winnings will offset some of the trading losses or extra expenses incurred.

Liffe's new products are aimed chiefly at companies which are particularly vulnerable to unseasonal weather changes such as energy providers and brewers.

Energy profits swing

According to Liffe, major energy providers' profits can fluctuate by up to 5% for every single degree centigrade change in temperature.

Companies operating in Europe's newly liberalised energy markets are particularly keen to give themselves a competitive edge by hedging against weather risk.

Accord Energy, the trading arm of US utilities giant Centrica, has said it is "committed" to developing the weather deriatives market in Europe.

But according to the UK's Meteorological Office, up to 70% of all businesses, especially farms, clothing retailers and pubs, have some degree of exposure to weather risk.

Two years ago, the London pub chain Corney and Barrow bought specialised futures to hedge against colder than expected summer weather, which had sharply reduced profits the year before.

Tailored contracts needed

However, weather trading experts do not expect the Liffe contracts to usher in a boom in Europea weather derivatives.

"I would be surprised if the Liffe contracts create new demand," Stephen Dougherty, Chief Executive of London-based brokers Speedwell Weather Derivatives, told BBC News Online.

"Weather hedges need to be tailored to suit the needs of most companies. It would be unrealistic to expect aggressively liquid trading in these contracts."