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AMM's Guide to Steel FuturesSBM Weblog
Customers and Futures
Steel futures contracts provide customers with additional price risk tools.
SBM Viewpoint
Steel prices over the past four years have been heavily impacted by raw material price volatility making fixed price negotiations with producers difficult.
Producers and Futures
Steel producers can use steel futures contracts to sustain profits by locking forward high prices.
SBM Viewpoint
When market prices are high, steel futures contracts can provide the mill an opportunity to lock prices forward. While a fixed price physical contract can do the same, the guarantee of the price commitment is at times not the same.
Traders and Futures
Steel distributors and traders can use steel futures contracts to protect steel inventory values.
SBM Viewpoint
The biggest fear for steel distributors and steel traders, due to market price volatility, is devaluation of inventory.
Physical Price and Futures
Steel futures in combination with physical indexed price agreements allow mills to have forward price timing flexibility.
SBM Viewpoint
The forward selling price portfolio of a mill can be adjusted over time by adding or reducing steel futures positions. Physical contracts remain price indexed while a price risk management team decides the appropriate forward portfolio position based on current events in the market, internal budgets and input costs.
SBM versus other Indexes
Steel futures contracts that are settled using a physical market price opinion index such as the SteelBenchmarkerTM are different from other financially traded metals.
SBM Viewpoint
The concerns that have been expressed about the loss of mill pricing power and the fear of speculator driven price volatility are based on the trading experience from other metals. These concerns appear to be overstated.
