Steel starts to see benefits of financial trading software

Jun 30, 2012 | 07:00 PM | Gregory DL Morris, Bill Beck

Tags  CTRM, PricewaterhouseCoopers, Robert McCutcheon, Brady Plc, Open Link, Doug Gyani, Harry Knott, 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, “We’re 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 markets—copper, aluminum, specialty metals and alloys—have 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 steel—from mines and mills to fabricators and service centers—have 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 CTRM’s possibilities for their sector as well—facilitated 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 contracts—futures, options, swaps and so forth—for 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, some—but not all—with interactions. “In contrast, aluminum was truly global early on, while steel was often regarded as a national resource.”....





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