LME reports ferrous scrap trading activity

The London Metal Exchange (LME) says the first voice-brokered trade of its LME Steel Scrap contract was executed  4 May 2016 by INTL FCStone Ltd. on behalf of United Kingdom-based steel distributor Stemcor.

The new additions to the LME’s ferrous products, LME Steel Scrap and LME Steel Rebar, “have seen considerable support from the market since their launch in November 2015,” says the LME. On the scrap contract, 35,990 tonnes (3,599 lots) have been traded and on the rebar contract some 9,600 tonnes (960 lots) of steel have been traded. A new single-trade record of 1,000 tonnes (100 lots) of scrap was set in the 4 May voice-brokered trade. The new cash-settled futures contracts can be traded monthly out to 15 months and have a lot size of 10 tonnes.

“Real industry prefers to hedge through trades quoted over the phone by their brokers, so this first voice-brokered trade shows these contracts are being accepted as risk management tools for the steel industry,” says Matthew Chamberlain, head of business development at the LME.

Market open interest has been steadily growing and bid/offer spreads have been as tight as 50 cents, according to the LME. It says its market-making programs “have ensured that tradable prices for the contracts have been displayed since their launch and, for the first time ever, the global industry now has a 12-month tradable forward curve for both products.”

Phillip Price, head of market risk management and derivatives trading at Stemcor, comments, “The LME’s steel contracts are already developing sufficient liquidity to facilitate effective hedging of physical business, and we are very excited about the prospect for further growth. Based on the development so far we feel these launches have been the most successful in the commodities space since iron ore swaps.”

Spencer Johnson, global ferrous risk manager at INTL FCStone Ltd., says, “The LME’s collaborative approach to product development in the ferrous market has proven effective. INTL FCStone Ltd. has seen increasing demand from our clients to trade these new contracts and we are happy to provide this additional service.”