India Steel Market Watch
November 23: The London Metal Exchange (LME) launched three new contracts such as ‘Steel Rebar’, ‘Steel Scrap’ and ‘Aluminium Premium’ on November 23, 2015.
These contracts became live after nearly three years. Currently, another steel contract, “Steel Billet” is being traded on the exchange. But the liquidity of this contract was not significant. Though the LME has tried hard to increase participants in the market, experts suspect that the road ahead is tough. The LME has a steel committee and big investors like Goldman Sachs recently joined the committee to guarantee liquidity in the market.
Interestingly, these new contracts will be cash-settled contracts. The new contracts are expected to be more successful than the physically deliverable steel billet contract launched in 2008. It is assumed because cash-settled iron ore contracts in Asia have seen volumes soar.
"We are aiming to be involved from day one, depending on the market conditions and available liquidity," said Phillip Price, responsible for market risk management and derivatives function at Stemcor, one of the world's biggest steel traders. However, traders feel that launching a new contract is not easy at this point of time because the underlying business is not doing well.
The LME is the biggest market for base metals but for steel and other minor metals, the exchange is not very popular. It is expected to boost the profitability of the 138-year old exchange. Few years back, Hong Kong Exchanges and Clearing (HKEx) bought LME against $ 2.2billion.