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FAQs

LME Ferrous

The new LME Ferrous contracts

  • Why are these new steel contracts cash-settled?

     As has been proven with our existing physically delivered billet contract, the physical delivery of steel is challenging for various reasons:

    ·        Steel rusts and deteriorates over time

    ·        Storage and transportation costs are very high relative to the value of the metal

    ·        Scrap is difficult to transport due to its irregular shape and composition.

  • How have these new contracts been developed?

    This has been an extremely customer-focussed product launch, and our approach of targeted market engagement has ensured we have created contracts that participants want to trade. Our ferrous suite balances the needs of physical participants looking to hedge their exposure and financial participants seeking risk. Our proposed market-making programme is designed to ensure the new contracts are highly liquid from the outset [subject to regulatory approval]. A significant number of market participants have already expressed an interest in our market-making programme.

  • What are the benefits of trading these contracts?

    These new ferrous futures contracts allow physical users of scrap and rebar to reduce their risk exposure by locking in the prices at which they will buy or sell resources in the future. The contracts will also allow financial traders to gain exposure to the steel market and the broader economy.

  • Is there an appetite for these new futures contracts in the steel industry?

    We have received strong support from the steel industry and from financial participants for the launch of our cash-settled scrap and rebar contracts. The contracts will complete the supply chain of long steel products from initial inputs (scrap) through intermediate stages (billet) to final products (rebar). This:

     

    ·        benefits physical players as it allows them to hedge every step of the value chain

    ·        gives financial players the opportunity to arbitrage between different stages of the value chain.

     

  • Why have you chosen scrap and rebar as the two new contracts?

    We’ve chosen to cover the supply chain of long steel products from initial inputs (scrap) through the intermediate stages (billet) to the final products (rebar), benefitting physical participants by allowing them to hedge every step of the value chain; and giving financial participants the opportunity to arbitrage between different stages of the value chain.

  • What are official names of the two new contracts?

    LME Steel Scrap and LME Steel Rebar.

  • Why is the LME launching new steel contracts?

    The steel industry already hedges its non-ferrous metals through the LME. The steel market is large and it is a natural step for the LME to meet this latent demand from our existing and future customers with an appropriate range of risk management and hedging tools.

Pricing of the new LME Ferrous contracts

  • Why did you choose the Platts index for rebar?

    The Platts index is based on the export price or rebar, which broadens its appeal to physical customers in different markets. From a technical perspective, pricing in the US dollar improves liquidity and reduces currency risk, while the presence of historical daily prices facilitates the back-testing of trading and hedging strategies.

  • Why a Turkish reference price?

    Turkey is uniquely positioned to provide globally relevant prices, as it is the global trade hub for the scrap and rebar markets. Turkey is the largest exporter of rebar in the world, supplying to countries across North Africa, the Middle East, the US and Europe. Around 70% of the world’s steel produced by the dominant electric arc method comes from Turkey, and the country is also the largest global scrap importer.

  • Who will provide the reference prices for the scrap and rebar contracts?

    After extensive analysis and consideration, we selected the Platts/TSI reference index prices for our new cash-settled ferrous contracts. The chosen reference prices are:

    • for LME Steel Scrap: TSI Turkish Imports HMS #1&2 80:20, CFR Iskenderun Port
    • for LME Steel Rebar: Platts Rebar, FOB Turkey Port.

    We are confident that these benchmarks and the methodologies used to calculate them are comprehensive, taking account of IOSCO standards, and are highly respected within the steel industry.

  • How are the contract prices determined?

    As these contracts are cash-settled, the reference index price provider delivers the monthly settlement price, which is the average of the daily prices of the index during the front month.

Contract specifics