It is understandable that players in the scrap sector have approached CME Group Inc.s new ferrous scrap futures contracts with a certain level of skepticism.
After all, people in the scrap world have been discussing, studying and arguing over the concept of ferrous scrap futures for at least a decade, and now that such instruments are actually a reality it has renewed the talks in the most serious way possible.
It is undoubtedly true that scrap futures contracts arent the right answer for every business; no financial tool or market choice is a one-size-fit-all solution. It is equally true that futures immediately made sense for some businesses, as evidenced by an early--albeit so far lukewarm--reception to them.
But whatever your feelings on the matter, the smart and prudent thing to do is to approach the new contracts with an open mind; study them and learn the details before making a decision either way. To that end, this issue features a special section, designed as an introduction and primer on scrap futures contracts.
A lot of people are wrestling right now with the question of whether scrap futures are a threat or a tool: Will they help some kinds of businesses and hurt others? Can this market be manipulated in ways that will be detrimental to the industry? Will they create a more level playing field? Is hedging against future value a wise business strategy? It is reasonable and advisable to ask and research these questions, plus many more.
But always keep in mind that, like other business theories and practices, participants shouldnt expect perfection, nor should they unfairly use such expectations as a yardstick to measure the new idea. Futures contracts provide risk management, not risk elimination. When approached with this attitude, it becomes clear that the financial instruments can be viewed as another tool in the toolbox designed to help, rather than seen as a weapon designed to threaten the industry.