Early adopters weigh in on ferrous scrap futures

Mar 26, 2013 | 07:00 PM | AMM staff

Tags  U.S. ferrous scrap futures contract, Bradley Clark, Kataman Metals LLC, Spencer Johnson, INTL FCStone Inc., Andre Marshall, Crunch Risk LLC, Nick Webb Jefferies & Co. Inc.

A number of financial companies and trading firms are already working with the new ferrous scrap contract.  What do these early adopters think? Several spoke with AMM to discuss their experiences using the new financial tool and to share their thoughts about its future.

Bradley Clark, director of steel trading, Kataman Metals LLC, St. Louis:
“We buy steel and scrap. We hold inventory and we hedge that, so we use all the tools available to us. We use the HRC (hot-rolled coil) and the scrap contract to offer customers solutions they would not otherwise get, but on its own the scrap contract will take several years to take off. Look at iron ore: it took about 10 years, but it was a real success story.”

As an analogy, “freight was oversupplied and depressed for about 50 years. Around 2005, when China started to build its infrastructure, freight went through the roof. But the shippersÑgrain, coal, iron oreÑhad experience in the futures market because of the underlying commodities so they were able to use hedging.”

Some mills and yards are not familiar with hedging on an exchange, but that will change over time. “People note that the HRC contact is doing well. But it is not just after five years; there were two years of development before that. So figure seven years for the new scrap contract or others on different exchanges. It’s like a dance. The more people on the floor, the more want to come on the floor. But just having a few people out there dancing their heads off can sometimes be a hindrance.”....

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