* Iron ore is one of the most popular ferrous contracts
* Exchanges launch new contracts to cash in on market growth
* US steel scrap, coil have more chances of success- FCStone
By Silvia Antonioli
LONDON, April 9 Commodity brokerage INTL FCStone
sees increasing customer interest in the steel
derivatives business, and wants to expand in this young sector
as more players seem willing to hedge in a volatile market.
The firm, with a strong background in grains, has been
expanding into metals since 2011, when it bought Ambrian
Commodities and MF Global Holding's metal brokerage team,
gaining ringdealing membership of the London Metal Exchange
Although its metals focus remains base metals, the U.S.
brokerage expects to see higher trading volumes this year from
its steel business, which currently involves 5 staff in the
United States and 3 in the UK, metal broker Spencer Johnson said
in a phone interview from New York on Tuesday.
"We see strong growth potential in this market as ferrous
businesses have long been under served in terms of risk
management instruments, but also in terms of service," he said.
"This is largely a function of the lack of experience some
firms may have in hedging, which in turn results from the lack
of any liquid futures market prior to about 2009."
The steel derivatives market only represents a fraction of
the 1.5 billion tonne a year steel trade, but the number of
contracts available has multiplied in the last couple of years
to reflect different steel products.
Exchanges have rolled out new contracts in response to
growing demand from physical players willing to hedge to counter
higher steel and raw materials volatility and also due to
financial players' interest in betting on the steel market, an
indicator of economic growth.
Iron ore swaps are one of the most popular steel derivatives
so far-- a 115 million tonne a year paper market against a 1.2
billion tonnes physical seaborne trade.
Among the other contracts now available Johnson thinks the
U.S. steel scrap and the U.S. steel hot rolled coil (HRC)
contracts launched by CME Group, have the highest chances of
"Iron ore trading has exploded, and the need for raw
materials hedging amongst traders and steel producers suggests
that a similar fate is certainly possible for scrap futures,"
Johnson said, adding that in the finished steel category the HRC
has been a "bright spot" in terms of liquidity growth.
"For U.S. HRC we expect consistent monthly volumes of at
least 100,000 short tons based on February and March volumes
which have set new records for the exchange," he said.
LME AND STEEL
Up until its bankruptcy, brokerage MF Global accounted for a
very significant portion of the LME steel billet futures
volumes. The LME steel futures however, have since lost
popularity mainly due to a disconnect with physical prices.
Under new ownership of the Hong Kong Exchanges
however, the LME intends to launch new ferrous contracts to cash
in on the fledging market.
Although some steel players are sceptical of the London
exchange's capability to compete with more established exchanges
in steel such as the Singapore Exchange and CME Group
, FCStone said it would welcome such addition.
"The LME can leverage its reputation as the (biggest) global
metals exchange and help ferrous derivatives succeed," Johnson
"It seems that new contracts are inevitable given the
success other exchanges have had in ferrous product listings,
and we look forward to including those as part of our already
extensive LME capability."
FCStone brokers all major ferrous futures traded on North
American and foreign exchanges and its swap dealing arm, INTL
Hanley, offers over-the-counter ferrous products.
It does not broker steel rebar futures on the Shanghai
Futures Exchange (SHFE) due to restrictions to Chinese
"This is unfortunate as SHFE rebar remains one of the most
active futures markets in China, but we are hopeful that Chinese
exchanges will open their doors to foreign firms in the years