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Steel

  • What is the significance of billet in relation to rebar?

    Steel billet is a semi-finished product used in the production of steel reinforcement bars (rebar).

    The significant price correlation between billet and rebar suggest that industry could price their rebar using the LME Steel Billet price as a benchmark, plus any conversion costs, premiums and profit.

    Users of rebar, mainly those in the construction sector, could also utilise the LME contract to manage price risk and hedge their exposure to price volatility.

  • What are the advantages for a producer to list their steel billet brands?

    Producers who list their steel billet on the LME could benefit from:

    • Access to a global market of ready buyers
    • Ability to sell into the LME marketplace and improve cash flow, especially when demand is suppressed or a buyer reneges on a contract
    • Inventory financing and trade finance opportunities
    • Improved production management in times of uncertainty
    • The opportunity to align your products with other LME-approved brands

  • Where are the delivery locations for the LME Steel Billet contract?

    Refer to the map of approved steel billet delivery locations for details of delivery locations.

    For further detail on approved warehouse companies please refer to the list of approved storage facilities.

    Please note the product code related to LME Steel Billet is FM.

  • Why is physical delivery important for futures?

    The option of physical delivery, whilst very rarely used, plays an important role in creating price convergence between the physical market price and the LME futures market. In effect this means that if the LME price appears too high or too low, those in the market will see a favourable pricing opportunity and make use of the delivery mechanism.

    This presence, or threat, of delivery has the effect of constantly ensuring that the LME price is in line with the physical market price. It also enables industry to sell material via the Exchange delivery system in times of over supply, and use the LME as a source of material in times of extreme shortage.

  • Why billet?

    Billet is freely traded and produced in standardised merchant grades. In addition, it is easily and relatively cheaply stored, unlike other steel end products. It is not as prone to being damaged and can remain in storage for an indefinite period of time. Oxidation is lost in the re-processing stage.

  • I have some non-ferrous metal/steel and would like to buy or sell on/to the LME

    The LME is a financial market used to manage future price risk, supported by the option of physical delivery (a terminal market). The LME does not facilitate physical trading for the purchase or sale of physical material. Companies with physical metal to sell will normally deal directly with their customers or through merchants. Some LME members are active in the physical market and have a physical trader or trading department trading LME warrants. These members may be able to assist in the sourcing of physical material as an additional service, this however is not their main business.

    Metal that is ‘good for delivery’, is stored on warrant in LME-approved warehouses and must meet the specifications of the individual metal contracts laid down by the LME. In order to ensure the quality of metal held on warrant for delivery against LME contracts, all material must be of a brand listed as good delivery and approved by the LME directors. If a party wishes to sell material and that material is of a brand and specification in accordance with LME rules, then the party can deliver the material to the warehouse, have it placed on warrant and sell it through a broker. A buyer can also source material through their broker (LME members).

     

  • Do futures contracts create steel price volatility?

    Futures contracts provide effective and reliable tools with which to manage volatility. There is no evidence to suggest that futures contracts have any effect on price volatility, in fact this is not their purpose. Without volatility and price risk you would not need a futures contract.

    The reasons that the steel industry is subjected to volatility are similar to those in other industrial metals market. However, they may be more pronounced in the steel industry due to the fact that many producers are no longer able to establish fixed prices for their purchase of raw-material well ahead of time.

    This situation is contrary to many companies in the non-ferrous industry which often have access to their own ore in the ground. The steel producer’s problem is combined with the difficulty for the majority of steel consumers to switch to other substitutes, as well as the lack of risk management tools to reduce price risk. Thus, volatility remains high in buoyant times.

    A futures market introduces the potential for funds and speculators to invest in the industry, their involvement does not increase fundamental volatility in the long run and may dampen cycles by taking the opposite side of a trade to industrial clients. These entities provide significant liquidity to the market.

  • Why the LME for steel billet futures?

    The LME has been trusted to provide risk management services to the international base metals industry for more than 135 years and it has an outstanding record of credibility in its contract specifications, price discovery and physical delivery mechanism.

    In addition, its unique experience of managing the delivery mechanism of an international network of warehouses puts it in a strong position to deliver a physically delivered contract for steel.

    Many steel producers already use the LME for hedging their zinc, tinnickel and aluminium alloy exposure.

  • How are LME Steel Billet futures contracts traded?

    Steel billet can be traded up to 15 months into the future on all three LME platforms: open-outcry Ring trading, electronically on LMEselect, and via the inter-office telephone market. As with all other LME contracts, only members of the Exchange are able to trade; the physical industry and other market participants must access the LME market and its risk management services through the LME’s members.

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  • How do futures contracts help the steel industry?

    LME Steel Billet futures contracts enable the steel industry to manage volatility in steel prices through hedging. Hedging is the process of managing the risk of a price change by offsetting it in the futures market.

    The ability to hedge gives producers, consumers and merchants in the industry the choice of how much price risk they are prepared to accept.