Trade volumes based off the London Metal Exchange's two ferrous contract offerings in January and February combined nearly matched all the volumes booked in 2016, according to Marko Kusigerski from the London Metal Exchange.
In January and February, 563,860 mt traded off LME contracts based on The Steel Index's heavy melting scrap I/II 80:20 CFR Turkey price and Platts' FOB Turkey rebar price. Over all of 2016, a total of 577,360 mt traded off these two contracts.
The scrap contract price has been more widely adopted, with 262,150 mt booked in January alone, versus 57,610 mt of rebar that month.
The steel market has a long way to go with hedging, however, according to Kusigerski, who is head of ferrous for LME. He was speaking on the sidelines of the S&P Global Platts 13th annual Steel Markets North America conference in Chicago. He said that in base metals, buyers hedge about 30-40% of their exposure.
"Uncertainty is the only certainty at the moment," Kusigerski said, adding that hedging with a tool such as an LME contract was key to managing risk.
The Turkish scrap and rebar prices have relevance for US buyers because Turkey is the largest importer of scrap globally, Kusigerski said.
After Europe, the US is the largest user of the LME's ferrous contract prices. In the 2010-February 2017 period, the TSI's price of HMS I/II 80:20 CFR Turkey correlated 94% with US Midwest shredded scrap, he said.
