Steel starts to see benefits of financial trading software
Jun 30, 2012 | 07:00 PM
| Gregory DL Morris, Bill Beck
Back in the day, there was a car rental company that played up its status as the second-largest operator in the business with the mantra, Were No. 2. We try harder.
It is essentially the theme of commodity trading and risk management (CTRM) in the global metal markets. The smaller and more concentrated marketscopper, aluminum, specialty metals and alloyshave never had the scale to counterbalance potential swings in the market, so they were quicker to adopt software tools and management practices that helped mitigate volatility and other market risks.
In contrast, participants in iron and steelfrom mines and mills to fabricators and service centershave had advantages of scale that in many cases became natural hedges. That is especially true of integrated companies. Recently, however, with the rapid proliferation of short-term contracts and growing international competition, some steel operators have been looking into CTRMs possibilities for their sector as wellfacilitated by a burst of activity in commodity exchanges for physical metal futures contracts as well as cash-settled, index-based instruments.
We have seen an increase in exchange-traded contractsfutures, options, swaps and so forthfor iron and steel, said Robert McCutcheon, head of U.S. metals and industrial products for PricewaterhouseCoopers LLP. Aluminum, for example, has been better able to construct models for their sales practices, and to link them back to the market indices used for trading.
While steel has been a worldwide industry almost from its earliest days, it was not actually a global market as it is known today until privatization and consolidation began in the 1980s, he said. Until then, it was a patchwork of regional and national markets, somebut not allwith interactions. In contrast, aluminum was truly global early on, while steel was often regarded as a national resource.....
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