MRAI 2023: LME sees growing interest in its ferrous contracts

Exchange trading platforms and brokerages have spent several years trying to create a level of interest in hedging and contract trading in the steel sector that is closer to that found in the nonferrous industry, and two panelists at an early February recycling conference in India said some progress is being made.

Joe Vu of the London Metals Exchange (LME) offered comments at the 2023 Material Recycling Association of India (MRAI) annual conference that portrayed its steel scrap trading contract offerings as “a great success.”

Vu, who works for the LME from Singapore, said the introduction of trading hours designed to coincide with the Asian business day have been one positive factor, as soon could a contract tied to the price of ferrous scrap shipped to the port of Nhava Sheva in India.

Additional Asia market-focused services have helped lead to higher daily volumes of steel and scrap trading on the LME, Vu said, averaging 3,150 daily lots recently. Vu said nearly 6 million metric tons of steel or ferrous scrap was traded on the platform last year.

The LME now has four contracts trading in finished steel—one for rebar and three for hot-rolled coils. It has three ferrous scrap contracts, tied to shipments to India, Taiwan and Turkey.

A 2022 breakdown of LME trading activity by contract shows the scrap contract to Turkey attracted a high percentage of the volume among those seven contracts, at more than 430,000 lots. The contracts with destinations to India (546 lots) and Taiwan (1,500 lots) received only a fraction of the activity obtained by the Turkish one.

Tony Ferrara of London-based StoneX Financial Ltd. said his brokerage and trading clients are showing more interest in the LME’s ferrous and steel rebar contracts overall, with “geopolitical political issues tied to Mr. Putin” in 2022 playing a role.

Previously, many ferrous traders “just lived with” volatility, Ferrara said, adding that the LME contract pricing and hedging services are proving “very beneficial” to scrap importers in India, where the sector is poised to continue growing.

LME contracts of all types have gained the attention of fund managers and other investors, Ferrara said, in a development not always welcomed by physical metals producers and consumers. Most notably, in March of last year, the LME nickel trading contract soared largely because of a financial play, creating difficulties in the stainless steel sector.

Vu acknowledged the March turmoil caused a measurable “contraction in volumes” of trading in nickel and some other nonferrous metals on the LME in the remainder of 2022.

Despite the March incident, Ferrara said funds and other nonphysical participants can be helpful “in terms of more liquidity in the market.” Price volatility, however, is likely to remain as a side effect “now that metals have become another asset class” and algorithmic traders are taking part.

The LME, although with a global presence, currently does not maintain a metals warehouse in India. Vu said the exchange maintains stringent guidelines pertaining to net metals consumption in a port city and sufficient port capacity in a free-traded bonded area before it approves a new location, “I think it’s a fantastic idea, but the framework has to be adhered to," he said regarding setting up an LME warehouse in India.

The LME representative said overall the exchange is well positioned to attract more business in the metals recycling and secondary metals sectors. He said the LME’s commitment to identify and promote low-carbon metals includes published LMEPassport details that allow producers to spell out their recycled content.

The 2023 MRAI International Material Recycling Conference was Feb. 3-4 at the Grand Hyatt Kochi Bolgatty in Kochi, India.