LME scrap contract gains momentum

More than 1 million metric tons of ferrous scrap were traded via a single London Metal Exchange contract in February, crossing a new threshold for the scrap futures and hedging instrument.

“In February, our LME Steel Scrap CFR [cost and freight] Turkey contract reached an important milestone, trading over a million [metric] tons in a single month,” says Alberto Xodo, vice president at LME. Xodo has been working to boost the scrap contract’s profile for several years.

With February bringing with it an average daily trading volume of more than 50,000 metric tons using the Turkish contract, Xodo tells Recycling Today the momentum behind ferrous scrap hedging is positive.

“There’s been exponential growth in our steel scrap contracts in the last six months, driven by increased participation from the industry and improved electronic liquidity,” he says. “At this rate, we are on track to meet our targets of doubling annual volumes and trading 10 million tons well before year end.”

A set of presentation slides prepared early this month by Xodo refers to the Turkish CFR contract as the oldest scrap instrument from the exchange, having been introduced in 2015 along with a Turkish rebar contract.

In 2019, the LME introduced three additional finished steel contracts. Then, in 2021, it added yet one more steel contract plus two new scrap products: a contract for scrap delivered CFR to Taiwan and another to India.

The three contracts combined were pegged to more than 1.1 million metric tons of scrap trading in February, according to the LME. A bar chart showing the LME’s scrap trading volume since June of 2021 shows an overall upward trend since about June of last year. It also demonstrates considerable upward momentum this January and again in February.

In a February presentation at the 2023 Material Recycling Association of India (MRAI) annual conference, Xodo’s colleague Joe Vu said the introduction of trading hours designed to coincide with the Asian business day seems to have been one positive factor creating growing interest in the scrap contracts.

The presentation slides prepared by Xodo indicates LME inter-office telephone trading remains the dominant method for trades on the scrap contracts. Most trading days, the exchange’s LMEselect online method accounts for less than 15 percent of scrap contract trading.