LME Asia Week 2018: Steel and ferrous contract activity rising

Trading contracts introduced in late 2015 by the London Metal Exchange (LME) for ferrous scrap and steel rebar (commonly made from scrap) have seen increasing amounts of activity, according to Matthew Chamberlain, the LME’s chief executive.

In a presentation given at the LME Asia Week 2018 Seminar, which took place in Hong Kong in mid-May, Chamberlain referred to the contracts as a “bright spot” in the LME’s portfolio since the LME held its previous Asia Week seminar in May 2017.

Approximately 4.8 million metric tons of ferrous scrap and 1 million metric tons of rebar have been traded using the contracts since they launched, according to Chamberlain.

Ferrous scrap contract trading began gaining momentum in the summer of 2017, according to a slide presented by Chamberlain. In eight of the nine months between July 2017 and March 2018, more than 250,000 metric tons were traded monthly using the contract.

December 2017 was the lagging month (195,000 metric tons traded) while in both November 2017 and February 2018, more than 500,000 metric tons were traded using the ferrous scrap contract.

Although LME steel rebar contract trading has not been as heavy, the contract did see more than 100,000 metric tons worth of trading in both January and March of 2018.

Chamberlain reaffirmed the LME’s commitment to the physical market while also saying the exchange remains protective of its overall trading “ecosystem,” which also includes banks and algorithmic traders.

When reaffirming the LME’s commitment to in-person ring trading in London, Chamberlain also said the LME is going to conduct a three-month trial in 2019 by fixing the nickel pricing for that period without any ring activity. He said the trial will serve as a data collection exercise to help determine how or if the lack of ring trading affects nickel’s pricing during that stretch.

Chamberlain acknowledged LME warehouse activity may still be suffering from the damage caused by long warehouse withdrawal waiting periods that occurred for aluminum customers in 2012 and 2013. The long queues have disappeared, he noted, but volumes have not greatly rebounded.

“We want a [warehouse] network that reflects real world buying and selling,” said Chamberlain. While the LME’s warehouse volumes have not returned to pre-2012 levels, “I think our warehouse network is there if needed,” he remarked.

Chamberlain said adding cobalt and lithium cash settlement contracts to the LME’s existing roster of cobalt, nickel, copper and aluminum contracts means the LME “is uniquely positioned to service the growing lithium battery industry.”

Overall, he said the LME is committed to “fairness, choice and efficiency” as its guiding principles. “I’m optimistic about the future of the LME market,” stated Chamberlain.

The LME Asia Week 2018 Seminar was Thursday, May 17, at the Hong Kong Convention and Exhibition Centre.