Martin Abbott, former chief executive officer of the London
Metal Exchange, dismissed the need for scrap futures contracts
at a recycling industry conference in Warsaw.
primary metals should be used as benchmark products for scrap
merchants wishing to hedge, rather than scrap futures
contracts, Abbott said Oct. 29 at the Bureau of International
Recycling (BIR) meeting.
should be based on homogenous materials, he said, noting that
stainless steel scrap traders already use the LME nickel
contract to hedge the nickel content of their product.
A rival commodity
derivatives trading platform, CME Group Inc., launched a U.S.
Midwest busheling ferrous scrap contract in September 2012,
based on AMMs Midwest Ferrous Scrap Index for
No. 1 busheling.
The first trade on the
contract was made on September 10, brokered by Freight Investor
Services, with Macquarie Bank acting as a general clearing
Abbott, who guided the
LME through its $2.1-billion sale to the Hong Kong Stock
Exchange earlier this year, suggested that ferrous scrap should
be hedged on futures contracts for billet, a semifinished steel
The LME launched its
own steel billet contract in 2008, but this has been beset by
problems, including issues concerning warehousing queues,
shrinking liquidity and a failure to deal with tax issues in
Turkey, the biggest market for the semifinished product.
CME Groups Black
Sea billet contract, which launched in 2011, has attracted
attention from a number of former supporters of the LME
contract, including JPMorgan Chase & Co. and Stemcor
Abbott blamed a lack
of volatility in physical billet prices for interest in the LME
contract falling to record lows.
The futures market
must be open to "different users with different motives," he
said, adding that "the role of speculators and investors must
be recognized because liquidity is absolutely key."
A version of this
article was first published in AMM sister publication Metal