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Steel futures are becoming more popular- 02 Aug 10

JPMorgan told Reuters that steel futures are becoming more popular with a broader range of industry players from carmakers to stockholders because of increased price volatility in iron ore trading.

Mr Jeffrey Kabel executive director of Global Ferrous Products at JPMorgan saw volumes on the London Metal Exchange's steel billet futures contract doubling in the second half of the year. He said that "Our clients are from across the board; we've got second tier steel mills, distributors, traders and consumers like car companies."

A move from the decades old annual benchmark pricing in iron ore, the key steelmaking ingredient, to a quarterly based mechanism by the powerful iron ore miners, has forced steelmakers to look for ways to cover their exposure to steel and iron ore.

LME steel contracts, shunned by the major steelmakers such as top producer ArcelorMittal since their launch in February 2008, have seen volumes hitting record highs for three consecutive months since April.

Mr Kabel said that "I think barring a downturn, I would say the volumes would probably double in the second half."

He added that there were more spot deals in the steel market, particularly in North America but also increasingly in Europe and Asia, which has prompted producers and other players in the supply chain to seek fixed prices through hedging.

Mr Kabel said that there were steel distributors and traders in the middle who were using futures to lock in sales prices so they were now able to offer fixed prices to their customers for the first time. He added that "They can offer a fixed price for rebar or fixed price to a construction company, fixed hot rolled coil to the maker of car parts, for example."

Mr Kabel said that the fall in steel prices was not likely to cause a slowdown in the volumes or in interest in futures. He added that "Some view now as a buying opportunity to lock in a price for a certain amount of time. For sellers who still have a need for margin, who are a bit concerned about prices falling further in the next 3 months, they're also locking in."

Aug 2, 2010 09:45
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