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.