Nasdaq Futures Inc (NFX)’s new Midwest US shredded steel scrap financial futures contract recorded its first trade on Friday January 12.
The trade was for a March 2018 futures contract and was priced at $360 per ton, according to data on NFX’s website. It was traded by Ferrometrics Partners, according to the investment fund’s chief executive officer and founding partner Phillip Price.
“Ferrometrics is very pleased to have been involved in the first shredded scrap futures transaction and to support the development of this contract,” Price told American Metal Market. “The domestic industry now has a tool at its disposal that will enable hedging with minimal basis risk. We are already working with key US industry players to leverage the opportunities offered by this contract.”
The contract, which is based on AMM’s Midwest shredded scrap index, also offers significant arbitrage prospects, Price continued.
“Over the past two years, we have seen incremental growth in the market for London Metal Exchange scrap derivatives, geared towards the international market, and we hope this has paved the way for success in a US domestic market product,” he said. “Given the differential in grades and logistical costs, we see a tremendous opportunity for arbitrage with this new product.”
Indeed, ferrous industry market participants in the United States are increasingly recognizing the advantages of using financial futures contracts to mitigate their risks, according to an industry consultant.
NFX launched the cash-settled, 10-gross-ton-lot contract last month under the ticker symbol USSQ. March’s bids are at $355 with offers at $365, compared with $340 and $360, respectively, in February.
AMM’s Midwest index, which was launched in 2010, was assessed at $329.55 per ton on Wednesday January 10, up from $297.01 per ton a month earlier.
Editor's note: This article was updated on January 16, 2018, to correct Ferrometrics Partners' role in the transaction.