Commodity price reporting agency Davis Index will launch futures contracts for ferrous scrap that will list on Mettalex, a decentralized exchange for commodities trading, later this month.
U.K.-based Mettalex launched its blockchain-agnostic exchange that is available on Ethereum and Binance Smart Chain in February. The exchange incorporates Fetch.ai technology and enables traders to take leveraged long or short positions against a number of commodities, including lithium carbonate, steel recyclables, zinc, iron ore, natural gas and spreads Bitcoin/Gold and sCEX/sDEFI (synthetic assets) that represent the price performance of a basket of leading tokens in the centralized exchange space and the decentralized finance space, respectively.
Davis Index, with North American headquarters in Toronto and global headquarters in Singapore, is a proprietary market price data provider for the global manufacturing supply chain. The company carries six price reporting platforms in its portfolio.
Davis Index will launch exchange-settled daily contracts for bulk exports of ferrous scrap to Turkey and for containerized shredded scrap exports to India. The contracts will launch on Mettalex May 31, the companies say in a news release.
The Turkish contract will settle based on the Davis Index US-origin HMS 1/2 (80:20) bulk cfr (cost and freight) Turkey index. The Indian contract will settle based on the Davis Index containerized shredded cfr Nhava Sheva index.
Turkey is the world’s largest importer of ferrous scrap that ships in bulk vessels and sources most of its supply from Canada, Europe, Russia, U.K., Ukraine and the USA. The Indian subcontinent is the world’s largest importer of containerized ferrous scrap, sourcing from almost every region of the world.
“The ability to hedge the numerous recyclables grades and specialty finished products that make for most of the infrastructure around us has long been a need in our industry,” says Sean Davidson, CEO of Davis Index. “The current system provides the industry with less than a handful of instruments, and the basic risk and costs are just unworkable for most companies. Mettalex is finally answering the call for a decentralized exchange that can list any commodity. We look forward to providing our price benchmarks on the Mettalex platform to give the manufacturing, demolition and metal producing sectors the precise hedging instruments they need.”
Metallex says hedging tools remain largely inaccessible by small and medium-sized enterprises because of their high costs and commodity market participants face obstacles related to front running, poor liquidity, price manipulation and loss of value in the form of margin calls. However, Mettalex is enabled by decentralized finance (DeFi) liquidity and automated by blockchain-based smart contracts and uses advanced machine learning to automated market making and price data delivery mechanisms. The firm’s Autonomous Market Makers act as a party to all trades on the exchange, ensuring that the system is fully collateralized with stable coin liquidity and setting the prices of long and short positions, according to the company. Autonomous software agents from U.K.-based Fetch.ai enable commodity-focused price data to securely flow into Mettalex and settle markets, according to the company.
“A critical byproduct of the Mettalex platform is the transparency it will bring to the pricing data around the world’s most valuable commodities,” says Metallex CEO Humayun Sheikh. “By making this type of market intelligence and the ability to trade more readily accessible, Mettalex aims to bring one of the oldest forms of trade in human history into the present century. With Mettalex we aim to align the incentives of traders, stablecoin liquidity providers and physical commodity holders to create a one-of-the-kind tool that is accessible to anyone on this planet, 24/7/365.”
All trades on Mettalex happen within a predetermined price band based on the asset's historical volatility. The band allows getting exposure at only a fraction of the cost of the traded asset, effectively enabling leverage, according to the company. Mettalex says users can create the markets they need as long as they use the oracle the platform plans to make fully customizable.