Traders lead early interest in ferrous scrap contract

Mar 26, 2013 | 07:00 PM | Gregory DL Morris

Tags  CME Group Inc., Young-Jin Chang, U.S. ferrous scrap futures contract, Cleartrade Exchange Pte Ltd., Cleartrade Exchange China Steel Index, Richard Baker, Shanghai Futures Exchange, Eka Software Solutions Pvt Ltd. Manav Garg

In the six months since CME Group Inc. launched a U.S. ferrous scrap futures contract, more than 20,000 tons have been traded in more than 1,000 contracts. Whether that is considered impressive or inconsequential depends on the comparison and the time frame.

Against other ferrous futures, it’s a tiny number. Hot-rolled coil, for example, saw 130,000 tons traded in February--but, in fairness, the hot-rolled contract is five years old and didn’t trade at all in its first six months; compared with that, the scrap contract is a hit out of the box.

The CME has traded a Turkish scrap contract for quite some time, and Cleartrade Exchange Pte Ltd. in Singapore also trades a Turkish scrap contract.

Given its role in what the CME calls the virtual steel mill, where hedgers and speculators can trade some or all of the commodities in the steel supply chain, the question of the place for a scrap futures contact seems to be when, not whether. That said, there remains an industry education challenge for the exchanges that trade futures, not just in scrap but all ferrous contracts, in convincing mines and mills of the utility of financial risk management.

“The scrap contract has grown in line with our expectations since the launch in September,” said CME director of metals research and product development Young-Jin Chang. “It is a very new contract, and still the gains so far make it a great success. We see scrap catching up quickly with (hot-rolled coil) and other ferrous contracts.”....

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