The London Metal Exchange (LME) said on Monday it plans to launch new steel rebar and scrap contracts and also said it was still committed to its existing steel billet contract.
The LME, owned by Hong Kong Exchanges and Clearing Ltd , will also launch its new aluminium premium contract in the first quarter of next year, Matthew Chamberlain, LME head of business development, told a presentation.
Chamberlain acknowledged that the LME's existing billet contract was not functioning properly, but that the exchange was confident it can become more viable.
The LME will consult with its members over the next few months before releasing proposed details of the rebar and scrap contracts, which are expected to be cash-settled versus the physically settled billet contract.
They would probably not be launched until next year, while a second phase of contracts may include ones for iron ore, coking coal and steel coil.
Chamberlain said the current steel billet contract has started to perform better since the LME has taken two measures: The contract now has its own load-out queue so it is not stuck behind long warehouse backlogs for base metals, and the LME has made it a European contract rather than covering Europe and the Far East.
"The market has broadly said this contract is beginning to perform, let's keep it there, support it and let's build those (other) contracts around it," he said.
"It's never going to be a huge contract ... but the market wants us to keep it there as a cornerstone and build perhaps the bigger volume contracts around it."
He said the aluminium premium contract would be offered for four regions: the U.S. Midwest, Western Europe, Japan and Southeast Asia. It would use a monthly settlement, unlike the daily structure for the underlying LME primary aluminium contract, he said.
Premiums are paid over the LME cash price to cover the cost of freight and insurance, and reflect regional demand and supply.
The CME Group Inc launched an aluminium futures contract last month in a bid to challenge the LME's $51 billion market and went live about two years ago with a contract for its own aluminium premium contract.
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