At the SteelOrbis Fall'11 Conference&65th IREPAS Meeting the LME Business Development Manager Chris Evans explained services that the LME provides and the role of futures contracts in the steel industry.
What is the level of awareness for your services within the steel industry?
I think it's growing.But I think there is a mystique about the LME,which is unfortunate.Because it's a very straight forward service.It's a bit like taking out insurance,just as you insure your car or your life against damage.You can use the LME to insure against prices moving higher or lower.That's what using the LME is all about,and that's the message that we are trying to get out into the market.Clearly these are very volatile times and it's hard to run a business in these circumstances.And we hope that the LME and its services to help to get through this though times.
How was the IREPAS meeting for you?Do think there was sufficient interest among IREPAS meeting attendees in your services?
I think it was fine.We certainly notice at the conferences that we attend,we attend a lot of conferences in a year,that there is a growing interest.We had an event last week,where we had a full room and a positive reaction from attendees.The true test is trading volumes.And even that is open to question actually.There are number of things that we are looking at.The first one is,whether the people are looking at out prices on daily basis,and most certainly they are.Two is trading volumes and we have seen a dramatic increase last year.Three is the movement of stocks in and out of warehouses,which shows the delivery mechanism of the LME working and if people are using it.And on all three areas we have seen very positive developments over the last couple of years.
Regarding the trading volume,last year the LME posted a new record in almost every month.What is the situation this year?
The first half of the year was quieter.But these things happen in any new contract.There are going to be good months and there are going to be better months.
It's been a while since you opened new warehouses in the US.How is it going in the US?
Very well.We had a number of new brand listings in the US.We had some quite big deliveries into warehouses in the US last week.A delivery of 2,000 tons,which is clearly a very positive development.We are also looking at other locations in the States,both in the coast line and inland.And in Europe,we recently opened up a warehouse in Bilbao.We are also looking at Constanza and Greece.
And we are still working with the Turkish situation to resolve the tax situation there.We are working with the Turkish government and the Turkish industry over the last couple of years.Although we have two warehouses in Turkey,but you cannot domestically produced steel in those warehouses.It's due to fiscal warehousing regime.A decree is need to be issued,enabling domestically produced steel to be held in those warehouses.
What is the role of warehouses?Why the physical delivery?
It's the best way to ensure convergence between the physical markets and futures markets.And also it's a very useful service for the industry.If you are a mill,for example,struggling to find customers for your steel and if you are an approved LME brand,you are able to sell your metal on the metal exchange.And you receive cash for your metal instantly.
What is the volume of physical deliveries?
Overall,for all metals,there are about 22 billion$worth metals in our warehouses,with more than six million tons in stocks.That's probably at its highest level for at least 20 years.And it's the reflection of the weak global economies.Producers in not just steel but in other sectors also,struggling to sell their goods to customers and they have been able to finance their operations by selling to the LME participants.Aluminum is a good example.
Recently we saw very steep fluctuations in currency exchange rate.Do you think tools like LME are complementary to other tools,used for hedging risks like currency fluctuations?
I think so.It's a bit like,when you play golf you have a bag of clubs.And you use a different club for the different parts of course.And the LME club is just one in the bag,but you may have other clubs against risks like fluctuations in currency exchange rates or interest rates.And there are number of tools that modern businesses use,and hedging is one of them.
But I should say that this not something revolutionary.This is how businesses in other sectors manage their business every day.Elements of it may be new for the steel market.But not all of the steel industry.For example large mill always hedge their nickel,tin and zinc requirements.So the suggestion that we are new to the steel industry does not reflect the truth.?We are part of it since 130 years.
Steel related futures contracts are increasing.Do you think competition is getting stronger,or do you think it increases awareness?
I think the number of tools out there reflects the need solve the problems around.Each exchange is targeting different parts of the market.There are providers of cash settled contracts,where is the LME is providing physically settled contracts.It's up to the industry to decide which one suits its needs.The advantage with the physically settling is,you can use it to manage your inventory in terms of delivery in to warehouse and out the warehouse.You can do that with a cash settled contract.
