Users Push Steel Futures; Producers Still Leery

Steel Sep 21, 2011 No Comments

As of August, the number of steel-futures contracts traded on the CME Group Inc. exchange was up 25% from a year ago to average 2,000 trades a month, while the London Metal Exchange, which offers a more widely used benchmark, sees about 20,000 contracts traded a month, up 55% from a year ago.

Steel trading is migrating to exchanges despite the reluctance of some large steelmakers, as consumers demand a way to protect their bottom lines from volatile prices.

While the outright volumes are small relatively to those in well-established gold or copper futures markets, the commodity exchanges see a lucrative market in waiting: Steel is the most widely traded industrial commodity that lacks a clear futures benchmark.

Steel prices are set at a flat rate by steel mills based on the cost to produce the alloy. Consumers in turn can use steel price indexes and market chatter to determine if they were quoted a fair price.

But large U.S. and European steelmakers, leery of market speculators and a loss of control over pricing, have been hesitant to make the jump to futures. Unlike some U.S. commodity-futures markets in which regulators collect data on who is trading, the makeup of the steel-futures market is less transparent. But anecdotal evidence suggests steel consumers are taking the plunge even as producers hold back.

via Users Push Steel Futures; Producers Still Leery – WSJ.com.

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Rod Sherkin

Rod is a former senior executive, responsible for Purchasing, for both Pillsbury and Ball Packaging back in the 80’s and 90’s. Since then, he has continued to work in the Purchasing field as both a consultant and founder of the website Propurchaser.com.

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