CHICAGO Flack Steel Ltd.
has started offering its customers a new kind of service:
managing market volatility through the use of hedging
strategies, according to the carbon steel flat-rolled service
"The bottom line is customers
want this, so we are adapting and taking service one step
further (by) providing access and advisory on the futures
market," David Feldstein, the Cleveland-based companys
new risk management director, told AMM.
A former trader at the Chicago
Mercantile Exchange and Chicago Stock Exchange, Feldstein most
recently worked as a futures trader in commodities, currencies
and interest rates.
Feldstein sees steel futures
trading as just another value-added service that Flack Steel
can offer its customers on top of supplying steel, processing
and logistical services, he said. "Its just an evolution
of the financial services already offered," he added.
But its not just
customers risk that Feldstein has been charged with
managing. Hell also be overseeing the companys own
hedging strategies, he said.
"The first thing I was brought
in here to do is to manage our own risk," he told AMM.
"If we have inventory that isnt sold(if) were
sitting on it and concerned about it in the marketwe can
sell it forward and lock in our margins. Then we can take that
to customersOEMs (original equipment manufacturers) or
other service centerswho can then buy forward."
Selling forward locks in future
pricing, thus providing more predictability of cash flow and
decreased volatility, Feldstein said. This type of financing
option makes budgeting easier and helps steel resellers and
consumers "avoid periods of financial distress," he added.
Some steel players have been
slow to adopt the use of steel futures to date, with a few
big-name mill executives particularly vocal in their
opposition, primarily on fears that a somewhat illiquid
contract could potentially be manipulated by speculators.
Feldstein conceded that a lack
of liquidity in steel futures trading has been somewhat
problematic, but noted that the market is moving in the right
direction. "There is an imbalance. There isnt enough
(liquidity) but that should improve over time. There are smart
people in this industry who will see the benefits of
(hedging)," he said.
Founded in 2010 by industry
veteran Jeremy Flack, the company distributes hot-rolled,
cold-rolled, galvanized and painted sheet products to end-users
in a variety of markets across North America.