NEW ORLEANS — A growing number of steel companies have turned to derivatives in an attempt to manage risk in a volatile and uncertain market, even as others remain hesitant to embrace the new tools.

"The price of steel can cause a lot of risk, heartburn and headache," Rick Dougherty, vice president of sales and marketing at Cargill Ferrous International, said during the Critical Commodities Conference sponsored by the Port of New Orleans. "In today’s volatile world—be it commodities, ocean transportation, logistics—it’s important to be able to manage some of that risk."

Futures and derivatives have been available to the U.S. steel market for years, with CME Group Inc. launching its hot-rolled coil futures contract and the London Metal Exchange launching its global billet contract in 2008. Nonetheless, industry players, particularly mills, have been slow to accept the concept, and as a result growth of the contracts has been modest.

However, supporters maintain the contracts have a place, especially as continued volatility in the steel markets remains a concern.

"We’d like to think that this is a short-lived volatile environment, (but) my money is on that it’s not," said Tony Ankar, director of risk management at Birmingham, Ala.-based O’Neal Industries Inc. "That’s why I believe risk management has become a core function of our business. It’s not a silver bullet, but we’ve got to have the perspective and start to look at the environment and the horizon to anticipate these types of risks."

Ankar said that the service center chain first participated in derivatives after the financial collapse in 2008. "We cried uncle in 2008 because we realized that the volatility was enough to put us out of business," he said. "We felt that the mini-cycles were here to stay. Lo and behold, we’re seeing them now."

But for the contracts to really catch on, it will require the support of players up and down the supply chain, conference panelists said, citing a need for liquidity.

"Steel will liquefy at some point. It’s a massive industry, and it’s the largest contract the LME has from a production standpoint," said Michael Whelan, vice president of warehousing company Metro International Trade Services LLC. "The aluminum contract took 10 years to launch, so steel is fairly new."

Not everyone is a likely candidate to participate in derivatives, however. Dougherty said likely candidates include those who want to price their products into the future to build pipelines or other large projects, like large automotive companies or OEMs, while end-users with short lead times and little inventory may not see the benefit of derivatives.

However, he noted that the increasing appetite for steel derivatives is nonetheless growing—and quickly.

"We’re seeing a number of different players increasingly join the exchanges," Dougherty said. "We get calls from every steel mill in the U.S. wanting to learn about derivatives. They want to know who is using it and why, and customers need price certainty in the future."