LME introduces new steel scrap contract

26 November 2015

The London Metal Exchange has launched LME Steel Scrap, one of three new contracts it is now offering. The other two contracts launched this week are LME Steel Rebar and LME Aluminium Premiums.

The new scrap and rebar contracts will be traded on the LMEselect electronic platform and are intended to enable industry participants 'to reduce their risk exposure by hedging more steps in the steel production process'. The contracts are cash-settled against physical Turkish scrap and rebar price indexes, and will be supported by market-making programmes to optimise market depth and tightness of spreads, according to the LME.

With the physically-settled LME Aluminium Premiums contract, participants will be able to hedge the regional 'all-in' price to ensure metal they receive is readily available in a non-queued LME warehouse at a convenient location. These are the first new contracts to be offered by the LME in more than five years.

Their launch at the start of this week was timed to coincide with a major upgrade of the LME's electronic systems, including LMEselect and real-time clearing system LMEmercury, which completed successfully on November 23.  'We have worked extensively with the market on these products, which will allow users to fully risk-manage their exposure to regional market dynamics,' comments the LME's head of business development Matthew Chamberlain.