After years of planning and vigorous debate,
steel futures have arrived, ushering in what could be the start
of a fundamental shift in the pricing of one of the world's
most important commodities.
For major steel producers, this was the
future that many of their executives rallied against. The fear
is that forward steel contracts could transfer pricing power
out of corporate hands and into those of speculators on
commodity exchanges. Producers' resistance hasn't diminished as
the number of futures contracts expands across the globe.
The Dubai Gold and Commodities Exchange
launched a steel futures contract for reinforcing bar last
year; the London Metal Exchange began ring trading steel
futures in late April; and despite several delays, the New York
Mercantile Exchange plans to launch its own contract. At the
forefront of the battle against steel futures has been
ArcelorMittal SA, the world's No. 1 steel producer and-given
its dominant position-arguably the producer that has the most
Lakshmi N. Mittal, the Luxembourg-based
steelmaker's chief executive officer, has insisted that steel
futures aren't a worthwhile endeavor and challenged the LME's
claims that the contracts will help stabilize prices in a
sector well known for its price volatility.
Producers like ArcelorMittal point out that
metals already priced through futures contracts are seeing
extreme volatility. Nickel prices, for instance, rose last year
to all-time highs exceeding $50,000 a tonne but have since
collapsed to about half that level.
Following the commencement of steel futures
trading on the LME, ArcelorMittal didn't back down on its
position. "We do not believe that financial institutions
speculating on steel prices will bring any benefit to the
long-term sustainability of our industry," the company told
AMM. "We believe the only true way to bring stability
to the steel industry is through consolidation. ArcelorMittal
has been at the forefront of this consolidation and the results
are already being seen."
ArcelorMittal was formed by the 2006 merger
of Mittal Steel Co. NV, Rotterdam, and Arcelor SA, Luxembourg,
a nearly $40-billion combination that brought new meaning to
the word consolidation. Since that time, steel prices have
gained considerable traction, aided by strong demand from
emerging markets, especially China and the Middle East, and
rising production costs resulting from surging iron ore and
Mittal also argues that steel producers are
acting more responsibly now than they had in the past by
reducing output during times of low market demand, helping to
stabilize steel prices and reduce volatility.
Germany's ThyssenKrupp Steel AG, Duisburg,
Germany, said it isn't interested in taking part in steel
futures trading, pointing out that spot business represents
only about 5 percent of the company's sales. "Our business
model is based on long-term customer relationships, with high
value-added carbon flat steel products," a company spokesman
Other major steel producers are staying out
of the debate for now. "We're simply taking a wait-and-see
position on futures," a spokesman for Pittsburgh-based U.S.
Steel Corp. said.
Nucor Corp., Charlotte, N.C., failed to
return calls seeking comment on the issue. However, Daniel R.
DiMicco, the company's chairman, president and chief executive
officer, has stated previously that speculators and other
financiers are the ones that stand to make money from futures,
not those actually in the industry.
Indeed, several traders and Wall Street
banks, anxious to obtain further exposure to the booming
sector, have expressed support for steel contracts in recent