LME gets industry execs on board ahead of steel contracts launch

22 September 2015

The London Metal Exchange (LME) has appointed four new members to its steel committee, including leading industry executives who are backing the exchange's new steel rebar and scrap contracts ahead of their launch in November.

The members include Goldman Sach's Philip Killicoat and William Schmiedel from Sims Group, the world's largest listed scrap metals recycler.

Also joining are Spencer Johnson from broker INTL FCStone and Gianpiero Repole from Liberty Commodities, a trade house. The LME has appointed Christian Schirmeister, a metals veteran formerly at JP Morgan, to help promote the contracts.

The LME, the world's biggest marketplace for trading base metals, is also close to sealing deals with market makers to guarantee liquidity for the new contracts.

"There's a lot of interest in hedging scrap and rebar ... what's preventing us is a lack of liquidity in (existing) contracts so having a market maker would be lovely to see," said Antonio Novi, a director at Levmet, a metals trader that also provides hedging services to industrial companies.

For real longevity, the LME will need support from major banks and the participation of top steelmaker and institutional investors, he added.

Steel derivatives have failed in recent years, including the LME's own billet future, partly because steelmaker outside China shunned them.

Industry experts say this attitude is slowly changing, however.

According to the LME website, Tata Steel, Europe's second largest steelmaker, will be participating in a ferrous metals panel during the LME Week industry event in London this October.

Sources told Reuters last year the steelmaker had taken a board level decision to start using iron ore derivatives, adding that the world's biggest steelmaker ArcelorMittal was already dipping its toes into the market..

The LME steel committee, which advises the exchange on matters like contract launches and specifications, also has key steelmaker like U.S.-based AK Steel and the Turkish Steel Exporters Association as members.

It does not have a big steel end-user on board, but end users are not generally sceptical of steel derivatives and are already using iron ore contracts as a proxy for hedging their steel input costs.

The LME's has been under pressure to boost earnings ever since it was bought by Hong Kong Exchanges and Clearing (HKeX) 0388.HK in 2012 for $2.2 billion. Its new steel contracts will be Europe-based and cash settled, so they cannot be crippled by problems withdrawing metal from LME warehouses.