As part of our drive to expand the suite of ferrous products on offer to our customers, we have introduced two new ferrous contracts, LME Steel Rebar and LME Steel Scrap. These cash-settled futures are designed to complement our existing ferrous contract - LME Steel Billet - and to meet the needs of the metal community for new risk management tools.
The LME has a long-standing, close relationship with the steel and steel input industries. Our new contracts have been developed in response to market demand and in close consultation with steel producers and consumers. These contracts complete the production value chain for long steel - from inputs (LME Steel Scrap) through semi-finished stages (LME Steel Billet) to finished products (LME Steel Rebar).
The combination of steel billet with our new scrap and rebar contracts delivers the optimal balance between physically-settled and cash-settled contracts. Maintaining a physically-delivered billet contract helps to ensure price convergence, and will act as the core of a suite of products which can then be cash-settled, enabling the market to trade spreads back to the billet contract. This benefits our physical customers as it allows them to hedge every step of the value chain, whilst also giving financial players the opportunity to arbitrage between different stages of the chain.
Market making programmes for LME Steel Rebar and LME Steel Scrap
We have introduced a market making programme to support the launch of our two new ferrous contracts. The programme forms part of our initiatives to enhance participation and liquidity on the LME and launched on the same day as the two new contracts.
Liquidity Provider Programme
From 4 January 2016, we will also introduce a liquidity provider programme for steel scrap and rebar. The programme will offer volume-based discounts to approved providers for trading on LMEselect within specified threshold bands.
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