London 16/06/2016 - Volumes and open interest are growing in the LME's two cash-settled steel contracts, which have gained more traction after a slow genesis amid some significant movements in underlying ore and physical markets, traders said.
"It is still a slow-burner but the more this [open interest] grows the better, as would-be customers just get a bit more confident. The plus is that they are based on a well-established benchmark and don't lose the link with the real market," a trader said.
The LME rolled out cash-settled steel scrap and steel rebar on November 23, 2015, and initially witnessed light interest. Total turnover to the end of December amounting to 69 lots of rebar and 39 lots of scrap. End-2015 open interest was just two lots of rebar.
They trade only on the electronic platform - Select - and in the inter-office telephone market. There is no open-outcry facility to trade.
But throughout 2016, open interest and business have progressively increased. There has been a recovery in the spot iron ore market while over the past two months physical steel products have seen activity and movement.
To the end of May, 48,480 tonnes (4,848 lots) of scrap and 23,890 tonnes (2,389 lots) of rebar have been traded. Open interest now stands at 940 lots of scrap and 371 lots of rebar.
The LME's longer-established steel billet contract, by contrast, remains neglected - often because of the disconnect with the physical market. Today, after eight days of price increases, the three-month price stood at $300/325 per tonne, the highest for 13 months.
Since the current run of price increases started, the market is up some 360 percent from the contract lows of $65/115 although the movement reflects adjustments to line up with the Turkish physical price.
Billet activity and interest has shrunk in recent years despite attempts to stimulate the market. The physically deliverable billet contract has been listed on the LME since 2008.
But volumes, open interest and inventories actually dropped to zero in mid-2014 before a modest pick-up. But that eight lots of open interest, equivalent to 520 tonnes, fell to zero again just over a year ago.
(Editing by Mark Shaw)