“The LME steel price has quickly become an integral part of the steel industry and has begun to be referenced in physical scrap and reinforcement bar transactions,” said Abbott. “The impact of the recession has brought increased awareness of the importance of price transparency and risk management to the 600 million tonne steel billet industry”.
Since the launch of trading in the Ring in April last year, official volumes have reached 1.5 million tonnes, with LME members indicating that additional, non-cleared, OTC volumes are exceeding four times those trading across the exchange platforms.
“Our last primary contract introduction was in 1978 – aluminium – which is now our largest contract,” said Abbott. “The steel contracts have had a very promising start and have already traded 49 per cent more volume than that of aluminium during its first year.”
The key developments include:
- Total LME trading of 1.53 million tonnes, almost all in the Mediterranean contract.
- The European ferrous scrap industry is beginning to price scrap at a discount to the LME price for physical supply contracts.
- The global construction industry and developers are increasingly looking to reference the LME price in their physical steel contracts as well as hedging their exposure to future price movements.
- Platts, SteelOrbis and The Steel Index are introducing published premiums for rebar and wire rod and discounts for ferrous scrap – referencing the LME Billet price. These will cover several locations in the US, Europe, Middle East and Asia and include over 20 premiums and discounts.
- A growing generic acceptance in international steel markets of the validity of LME steel prices as independent and transparently generated spot and forward prices.
- The mechanics of the LME warehouse model has seen extensive activity with material being delivered both in and out.
“This provides a solid foundation for further growth” said Abbott “The steel industry is beginning to fully appreciate and reap the benefits which our members are offering in risk management, financing and trading”