The LME Focus Day took place during LME Week 2022. It kicked off with the ferrous session "How does the ferrous industry use the LME contracts to manage steel price risk?" and it was hosted by Alberto Xodo, VP Sales, LME.

Get to know the ferrous session panellists a bit better in the Q&As below.

Viral Shah, S&P Global Platts

Could you please tell us a bit about your role at S&P Global Commodity Insights?
As a senior editor at Platts, which is part of S&P Global Commodity Insights, my responsibilities include daily pricing of the benchmark Turkish scrap assessment, collaboratively working with colleagues covering the related rebar and billet markets, and ensuring our wider pricing and news coverage of market movements are as accurate, reliable and timely as possible.
What are the pricing methodologies used at S&P Global Commodity Insights, and what are their strengths and weaknesses?
A key strength of Platts is our fully transparent pricing methodology (see the pricing methodology for Global Steel, Ferrous Scrap, Ferroalloys and Noble Alloys).

We assess prices based on trade, bid and offer information from a wide contact base of active market participants across the supply chain, rather than relying on volume-weighted averages or fixed formulas, which can often be distorted by one-off deals. In an extremely volatile market that has faced unprecedented challenges - from a global pandemic to war and geopolitical tension - we also publish all market information received as real-time ‘heards’ to maximize transparency for market participants. Our assessments in EMEA are published at 16.30 London time, with Platts publishing assessments that capture market value as of that timestamp. Platts also publishes daily rationales for key benchmark assessments, explaining how the final assessment was reached, as well as explaining any data exclusions or normalisations.   
What makes market participants trust these prices?

 The transparent publication of all deals, bids, offers, and tradable indications in the form of ‘heards’ allows for testing in real time, giving market participants the opportunity to validate or challenge the information published. Platts also publishes daily rationales and commentaries, explaining how market information has been prioritised for the assessment, providing further transparency. Additionally, Platts processes are reviewed annually by a leading auditor for alignment with IOSCO principles.

How do market participants use the PRA prices and the LME prices?
In recent years, we have seen more physical players take to indexation, for example, by agreeing bulk ferrous scrap deals to Turkey on a Platts CFR Turkey scrap assessment average basis, amid the sharp volatility of pricing trends in the spot market. The LME steel scrap and rebar futures contracts, which launched in November 2015, settle against the monthly average of the Platts CFR Turkey scrap and FOB Turkey rebar assessments.
There has also been growing interest in trading ferrous scrap and rebar futures on the LME to either hedge a physical cargo or to take a long or short position. The LME Steel Scrap CFR Turkey futures contract has already seen 2022 year-to-date traded volumes reach over 3.3 million metric tonnes by early September, and is on track to meet the highest annual volume since 2018. 
What big themes do you see for steel in Q4 and looking ahead to 2023?
Energy costs are the main concern for market participants in the near-term, so the main question is what will be the predominant effect - demand destruction or supply restriction? Energy costs remain high and subject to government intervention, which may cause further negative impact on finished steel demand as European and Turkish producers hike finished steel offers to offset higher production costs, while also cutting mill capacity utilisation and bringing forward maintenance. This will also have an impact on near-term demand for raw materials, including ferrous scrap, although scrap collection rates usually slow down in the winter period, reducing supply. 
It’s also always important to see what happens in China, the world’s biggest steel market, amid the continued zero-Covid lockdown strategy, concerns in the domestic real estate market, and how that could impact steel demand.
Other key topics to focus on in 2023 include how the EU Waste Shipment Regulation will be implemented, as this could negatively impact EU ferrous scrap export volumes. A major focus will be on how decarbonisation strategies in the steel industry develop, which ranges from increased ferrous scrap usage to new technologies involving hydrogen-based zero-carbon steel production. We will also have to keep an eye on the EU’s Carbon Border Adjustment Mechanism proposals and any changes to the EU steel import safeguard measures.


Koroush Khojasteh, M7 Metals

Could you please tell us a bit about yourself, your role and your experience in the steel industry?

I am the Head of Derivatives at M7 Metals and I focus on trading steel and steel-related financial markets. During my time at M7 Metals I have always focused on the derivatives space, supporting the growth and development of steel futures. Prior to M7, I led the development of Stemcor’s derivatives department and have worked on the trading floor of HSBC in the inflation rates space. When not trading steel, I enjoy boxing and running.

Could you please tell us a bit about what your company does?

M7 was founded seven years ago by three former senior executives of Stemcor. The company has a low-overhead model and advanced IT systems to provide good customer service in an efficient way. The core business of the company has always been physical steel trading, making the most of the decades-old relationships and reputations that our team has built in the industry. Marking another year of continuous growth for our physical trading business, we will trade over 150,000 metric tonnes of steel products this year. Our main sales markets are Europe and North America, but we aim to continue expanding.

In 2021, M7 made its first futures trades. This was not a new area for the team, and in fact one of our partners sat on the original LME committee almost two decades ago when the LME was considering launching its first steel contract (which resulted in the launch of LME Steel Billet), and he has maintained a deep interest in the futures market ever since.

It was clear already last year that steel futures were starting to reach an inflection point. The company took the decision to create a division focused purely on steel futures, and I was recruited at the beginning of this year to head up that division.

In 2022 we have become one of the most active players in the steel derivatives market both in Europe and North America, including running our own trading book as a stand-alone profit centre and becoming a market maker, offering buy-sell prices on request on all major steel derivatives contracts.

How do you use the LME steel prices and futures?

As well as a stand-alone profit centre, M7 utilises LME steel futures in order to provide a wide range of pricing and hedging solutions to our steel suppliers and customers, offering risk management practices across the steel supply chain. Year to date, M7 has directly traded over 185,000 metric tonnes of LME steel futures with additional tonnage traded on other exchanges globally.

What do you think is going to be the big thing to watch out for over the next 6-12 months in the steel industry?

Steel is a cyclical commodity and as such is highly exposed to macroeconomic conditions. The current inflationary and recession-prone market environment creates an exciting backdrop for steel markets with the inflationary factor supporting steel prices and the recessionary element suppressing them. In this dynamic, we expect steel markets to move in ’waves’, as the global economy attempts to navigate its way out of this macro cycle, creating a range-bound market. One thing we are confident of is that in the next 6-12 months steel futures, including those traded on the LME, will grow in volume, and we intend to participate in that growth.

Marco Micciché, Eusider Trading

Could you please tell us a bit about yourself, your role and your experience in the steel industry?

After my studies, I started working as a political advisor in Italy, where I was also Assistant of Compared Public Law at the University of Genoa.

I then started my career in the steel industry in 2005 in Duferco SA. After some years’ trading in Flat Products (I was in charge for CIS mills and the Mediterranean area, with a specific attention on Turkey and MENA, as well as selling to Duferco’s distribution in Latin America) I became the Manager for Metallics for the Group. This led me to blend the established trading relationship in Turkey / North Africa together with the new duties of managing both the feedstock for the factories belonging to the group and the assets like the captive scrap yards.

At the end of 2019 I left the company to join Eusider Trading as the CEO. 

Could you please tell us a bit about what your company does?

Eusider Trading SA is a company under the umbrella of a big Italian industrial group (Eusider Spa) who developed the new Lugano-based trading branch in December 2019.

The Italian mother company (which is a leading steel service centre and stockist) has a dominant role in the Italian market given their product range which includes coils for automotive and white goods, heavy plates, pipes and chromed bars, round bars, stainless steel and aluminium. In 2021 their turnover was 1 billion EUR through approx. 1.3 million tonnes turnover of their stocks.

More specifically, Eusider Trading’s activities cover the full range of raw materials, semis and finished products. During 2020 and 2021 we have been successfully consolidating our role in the trade of flat steel  (HRC / CRC / HDG / PPGI / PPGL / HRP) and long steel (billets and wire rod) from Turkey / Egypt / China / Taiwan / Vietnam / Korea into Southern Europe, North Africa, USA and Latin America.

With regards to metallics, we have a consistent business in HBI and pig iron (we stock-pile pig iron in Amsterdam for further distribution inside EU / North Africa / Southern Europe / Turkey) on top of our scrap yard in Amsterdam, where we regularly ship to Europe / Morocco and deep-sea cargoes to Turkey.

In 2021 we moved more than 300,000 metric tonnes of steel products and metallics with a turnover of approx. 180 million USD, which shows an exponential growth in the two-year life for our company.

How do you use the LME steel prices?

LME steel prices are a tool and a reference, and we compare where the futures are vis-à-vis the physical markets and as such can sometimes contribute to our own or our customers’ business by presenting a spread enabling some ‘physical against papers’ activity.

How do you use the LME steel futures?

I actively use the LME steel futures to both hedge our physical activity (i.e. daily purchases in our scrap yard, mitigating the risk of long and short positions, partially covering steel consignments).

What do you think is going to be the big thing to watch out for over the next 6-12 months in the steel industry?

We are working in an unprecedented market where the key words are volatility and lack of confidence.

In fact, markets have been severely impacted by the long war in Ukraine -triggering the energy crisis we are all suffering from in terms of inflation - and the resulting higher interest rates, expensive cost of production and dramatic drop in consumption as well as production. Additionally, the steel industry suffered also because of the zero-Covid policy in China where the real estate slowdown already resulted into a much lower than expected activity, with negative effects throughout Asia.

So, for the next six months we shall be cautious of the complicated and stringent macroeconomic conditions where wild cards (exacerbation of the conflict, unexpected additional hiccups on energy, social costs created by the forthcoming higher unemployment, lower steel use pro capita etc.) can have a negative impact in an already depressed environment where demand is well below average and steel service centres and stockists will be wary not to stock more than their achieved sales.

Having said this, the world shall continue to run and consumption should at some point recover as steel-intensive manufacturing is vital for both developed and emerging economies. This means that even during this next six months we may expect some short-lived positive cycles resulting from the hand-to-mouth stocks levels of both raw materials and finished steel products being temporarily outstripped by short bursts of demand.

If we consider the significant production capacity cuts worldwide, then it is likely that we could expect a gradual recovery from spring 2023 onwards. This, together with the pent-up demand and the reduced level of production worldwide, may then trigger a better second half of 2023 - as long as the Ukrainian conflict does not escalate and become a war between two continental blocks.

Stay up to date

Register with LME.com

Receive full access to all our price data and gain access to our monthly LME newsletter, packed with market tips and insights from our on-staff specialists.