CME Group Begins Scrap Futures Trading
Sep / 12 / 2012 - CME Group Begins Scrap Futures Trading
Will Scrap Futures trading bring in mill liquidity & spur more action in HR Futures markets
On Monday, September 10, 2012, the CME Group launched the first U.S. based scrap futures contract based on the U.S. Midwest #1 Busheling scrap prices. The contract will be based on AMM price assessments and will compliment the CME Hot Rolled Coil (HRC) Futures contracts.
Like the HRC Futures contract the Scrap Contract will be financially settled derivative which means there will not be actual physical delivery of the product. CME Group Managing Director, Harriet Hunnable, feels the launch of this scrap contract is a “…effective tool to enable price risk management throughout the entire supply chain, from raw materials to finished steel products. In addition to being an efficient risk management tool for regional industry participants, we firmly believe our U.S. Midwest scrap futures contract has the potential to become a global benchmark for price discovery and managing volatile input prices.”
Andre Marshall, CEO of Crunch Risk and one of the most active traders in the HR Futures arena provided SMU insights into early trading of the scrap futures and what he anticipates going forward:
“Scrap futures traded 1 lot yesterday. A lot of systems are not even set up yet to receive the new scrap contract so it will take a few days for everyone to receive prices. Prices are being populated today on the screen.
Scrap futures will provide dealers and consumers and generators of scrap a very effective tool to offset price risk in a given price scenario, like protecting inventory in a downward move, or to lock in prices forward for longer periods of time, like 6-12 months.
Mini-mills will now be in a position to offer fixed prices to their customers and will be able to lock in their inputs against that. They will be susceptible to the metal margin spread, but that, in theory, is something they well know how to manage.
The scrap contract will also help the HR contract as traders and mills will look at the metal margin spread and will transact it when favorable. The HR contract in turn will help generate forward prices in scrap via metal margin calculations.
I believe too that the advent of the scrap contract, which will be most active in the nearby months, 3-4 months out, will help the HR contract develop an "active" future month. Most futures contracts have an "active" futures month where most liquidity consolidates. This will in turn help the liquidity of that contract as more participants are comfortable with the liquidity in a given month in the contract. It will also help spur development of options which require an active traded month for management of options exposures.”
On Monday, October 8th, Bob Biolsi and Bernie Muich of the CME Group will discuss the new scrap contract along with the existing HR Futures contract during a free “Pre-Summit” program sponsored by the CME Group. The program will be held at the Embassy Suites Hotel at 5500 North River Road, Rosemont, IL between 9:30 AM-10:45 AM. Registration will begin at 9 AM. The program will also include Andre Marshall of Crunch Risk and Jonathan Putman of Standard Steel Trading – both well known within the HR Futures circles. Registration for the Pre-Summit program on Managing Price Risk through the use of HR and Scrap Futures is free to both attendees of our Steel Summit Conference as well as other interested parties who are unable to attend our conference.
At 11 AM our 3rd Annual Steel Summit Conference will begin (Registration will be open at 9 AM). Registration for our Steel Summit Conference is available on our website, on the METALCON website or through our office (800-432-3475). Discounts are available for SMU member companies.
A special thank you to our sponsors: Kloeckner Metals, CME Group, CSN, Alliance Steel, Kataman Metals, Standard Steel Trading, Institute for Supply Management (Steel Buyers Forum) and METALCON.
