Pricing volatility renews spark for steel futures market in US

Dec 23, 2010 | 09:08 AM |

The rapid run-up in U.S. steel pricing has some steel buyers seeking shelter from the storm, which they might find in a renewed call for the employment of steel futures.

Many see steel futures as having the potential to protect both buyers and sellers from volatility in steel pricing. While futures have been a mainstay in trading of other metals, steel producers have been slow to accept them, believing that futures stand as a hurdle between them and their customers.

However, the pace of the steel price run-up—marked by a 27-percent increase in carbon sheet pricing in a five-week span beginning in mid-November—has seen U.S. hot-rolled sheet prices, driven by rising ferrous scrap costs, climb to $700 per ton from $560 per ton in mid-November, with many fearing that prices in excess of $800 per ton will be in the market before the end of January.

"We hear scrap is going to be up another $50 or more in January," one Midwest service center source said. "We think (hot-rolled) is going to go higher. That's our expectation, anyway."

Such an increase has some looking at futures as a means of hedging price risk. The London Metal Exchange has taken note, and even has several U.S. flat-rolled producers making inquiries.

"Any price volatility in steel will make steel futures a more compelling proposition, as buyers and sellers will look to lock in prices to help manage cash projections," according to Robert Sheldon, the London Metal Exchange's new products manager. "We recently met with several U.S. steel players throughout the value chain—including steel mills, merchants and scrap suppliers—and we do feel the sentiment towards steel futures has strengthened during the recent pricing run-up. We've also had numerous discussions with construction companies who are tendering for construction projects often where a fixed price for steel is stipulated for the term of the tender."....