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World Steel Exchange seeks benchmarkers

The formation of World Steel Exchange (WSE) was announced on June 22, 2009 by the Chicago Climate Futures Exchange ...


The formation of World Steel Exchange (WSE) was announced on June 22, 2009 by the Chicago Climate Futures Exchange (CCFE) and World Steel Dynamics (WSD). The WSE will list futures contracts, initially for steel scrap. The contracts will trade and clear on CCFE’s internet accessible trading platform and will be based on the SteelBenchmarkerTM family of price indices.

Steel scrap index futures will begin to trade in 2009. The futures curve, which is settled monthly based on WSD’s SteelBenchmarkerTM steel scrap price indices, will extend at least 18 months ahead.

The massive swings in steel scrap prices in recent years have created a fast new world of uncertain profits, greater risks, more stress and unexpected opportunities for those in the steel scrap industry. The trading of futures contracts on the World Steel Exchange will give those involved in buying or selling steel scrap, steel products and steelmakers’ raw materials the opportunity to hedge the price risk.

Why become a regular SteelBenchmarkerTM provider?

From your point of view, once a futures market in steel scrap develops (as WSD believes it will), you will have the opportunity to lock in spreads, better manage scrap costs, transfer risk, demonstrate to your customers or suppliers the prices used in transactions with them can be trusted, and grow your business.

Exchange-traded futures contracts are designed to eliminate counterparty risk because the Exchange takes the other side of all trades and guarantees their financial performance. Significantly, notwithstanding the turmoil and stress in most financial markets in the past year, there have been no breaches of financial integrity by any regulated commodity exchange in any country.

From our point of view, “safety in numbers” assures that the steel scrap benchmark prices we publish reflect real changes in the market.

A reliable system

WSD has already made major progress in reporting steel scrap reference prices as a component of its SteelBenchmarkerTM system. The benchmark prices, generated twice per month, are robust — i.e., derived from many inputs. Moreover, the price inputs are confidential and cannot be influenced by financial players (because only those who buy and sell steel scrap or steel products provide the inputs). Each price provider’s inputs are weighed equally.

Twice each month since April 2007, we’ve been publishing a USA benchmark price for #1 heavy melting, shredded and #1 busheling scrap. These benchmark prices are based on inputs from several dozen providers. The next milestone for us is to boost the number of price assessment providers to at least 80; each additional participant makes our steel scrap benchmark prices ever more robust and resistant to manipulation.

Submit your scrap price assessments!

If you have not already signed up; just log on to www.steelbenchmarker.com Your price input will be counted, making our benchmark steel scrap prices even more robust and reliable.

As a SteelBenchmarkerTM price assessment provider you will receive WSD’s twice per month benchmark price reports, free of charge, for up to 19 products, including: a) steel scrap for USA for #1 heavy melt, shredded and #1 busheling; and b) hot-rolled band, cold-rolled coil, rebar and plate for the USA, Europe, China and the World export market. Additionally, you will receive a) training on the application of
steel futures transactions; b) selected WSD reports that forecast SteelBenchmarkerTM steel product and scrap prices for the USA, Western Europe, China, and the world export market and c) an invitation to participate in Peter Marcus’ scrap outlook conference calls.

Steel’s new world requires new tools

The efforts of World Steel Dynamics, the Chicago Climate Futures Exchange and American Metal Market/Metal Bulletin will provide steel scrap buyers and sellers, for the first time, new tools to manage the steel scrap price risk based on the opportunity to engage in transactions on a secure, and regulated, commodity futures exchange (WSE).

WSD and its partners have taken a variety of actions in the past four years to create the foundation for a vibrant steel scrap futures market in the United States:

1. Formation of the World Steel Exchange (WSE) on June 22, 2009. All contracts — futures transactions — on the WSE will trade and clear on CCFE’s internet accessible trading platform.

2. The creation of a robust benchmark pricing system — i.e. WSD’s twice-per-month SteelBenchmarkerTM pricing system. Pricing inputs are received only from steel scrap buyers and sellers.

3. The formation of a consultancy — World Steel Exchange Marketing (WSEM) — that provides extensive services, for no charge, to those seeking to manage the steel price risk. Each member of the WSEM’s five-person staff has a long history of performance and service to their constituencies.

Additional perspectives

Because all steel scrap resides in the same global bathtub, scrap price developments in the United States have an important impact on scrap prices in other countries — and, vice versa. Hence, the price of USA steel scrap is just as important to a steel scrap buyer in Turkey, or China, as one in the United States. About 600 million tonnes of it is consumed globally each year; of this, about 90 million tonnes is exported annually.

Steel scrap buyers and sellers involved in transactions are the only ones permitted to vote in the SteelBenchmarkerTM system. Hence, financial players, such as hedge funds, do not have a direct say in determining the price.

The WSEM group will work closely with American Metal Market/Metal Bulletin group to ensure the continuing robustness and reliability of the benchmark steel scrap prices generated by the SteelBenchmarkerTMsystem.

Three key grades for USA steel scrap

#1 heavy melting scrap. This price, along with shredded scrap, is a bellwether price considered by steel scrap buyers and sellers the world over when making their purchase or sales decisions. Generation of #1 heavy melting and related scrap in the USA is about 25 million gross tons per year.

Shredded scrap. There are more than 200 shredders in the USA, with about 20 million gross tons of scrap generated each year.

Prime industrial scrap (#1 bundles). This scrap price is especially important to the mini-sheet mills in the United States that have the capacity to produce about 20 million tons per year of hot-rolled band. The generation of prime — i.e., low residual — scrap in the United States may be about 13 million tons per year. This product is subject to hu
ge price variations. For example, it peaked at about $970 per ton, delivered to the steel plant, in July 2008, fell briefly to about $120 per ton in October 2008 and is now priced at about $300 per ton.

Contacts:

Peter Marcus CEO: 48 years as an analyst, forecaster and trusted consultant to the steel industry. pmarcus@worldsteeldynamics.com Tel: 201 503-0902

Pat McCormick President: 20 years head of global steel purchasing at Emerson Electric. pmccormick@wsemgroup.com Tel: 201 503-0920

John Conheeney Executive VP: 25 years in the futures industry as a floor trader and broker. Former marketing director (metals) at NYMEX. jconheeney@wsemgroup.com Tel: 201 503-0922

Mike Newman Vice-President: 40 years experience in the nonferrous metals industry. mnewman@wsemgropu.com Tel: 201 503-0914

Robert Mateer Consultant/Advisor: Former steel purchasing agent for Ford and Chrysler with 35 years experience. Now consulting to the steel industry. rmateer@wsemgroup.com Tel: 248 470-7850


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