Scrap futures contract records significant Jan trading activity

The new Nasdaq Futures Inc (NFX) Midwest US shredded steel scrap financial futures contract recorded its first trade last month amid a significant increase in ferrous scrap futures trading activity in general.

The first trade on the NFX exchange on Friday January 12 was for a March 2018 futures contract and was priced at $360 per tonne, according to NFX data. It was made by Ferrometrics Partners, according to the investment fund’s chief executive officer and founding partner, Phillip Price.

“Ferrometrics is very pleased to have been involved in the first shredded scrap futures transaction and to support the development of this contract,” Price said. “The domestic industry now has a tool at its disposal that will enable hedging with minimal basis risk. We are already working with key US industry players to leverage the opportunities offered by this contract.”

The contract, which is based on American Metal Market’s Midwest shredded scrap index, also offers significant arbitrage prospects, Price said.

“Over the past two years, we have seen incremental growth in the market for London Metal Exchange scrap derivatives, geared toward the international market, and we hope this has paved the way for success in a US domestic market product,” Price said. “Given the differential in grades and logistical costs, we see a tremendous opportunity for arbitrage with this new product.”

“Our relationship with some of the world’s leading exchanges has been supported by the accountability and auditability of our prices, including a state-of-the-art pricing system and adherence to International Organization of Securities Commissions (IOSCO) principles,” Metal Bulletin Group, RISI and FOEX divisional director Raju Daswani said. “We started publishing our Midwest ferrous scrap indices in 2010 and we remain the benchmark for the North American ferrous scrap markets.”

NFX launched the cash-settled, 10-gross-tonne-lot contract last month under the ticker symbol USSQ. March’s bids are at $355 per tonne with offers at $365 per tonne, compared with $350 per tonne and $360 per tonne, respectively, in February.

The contract is the result of a partnership between Nasdaq Futures and World Steel Exchange Marketing (WSEM) that aims to market and introduce steel and iron ore markets to global hedgers and institutional investors.

“WSEM and AMM provide market participants an efficient instrument to handle price volatility exposure and bring a higher level of price transparency to all marketplaces,” according to Rick Beaman, vice president and head of Nasdaq Futures. “This is a welcome step in our expansion into new asset classes in 2018.”

American Metal Market’s Midwest index, which was launched in 2010, was assessed at $329.55 per tonne on Wednesday January 10, up from $297.01 per tonne a month earlier.

American Metal Market’s prices are already the basis for another scrap futures contract. In 2012, CME Group Inc. launched its first-ever US ferrous scrap futures contract based on American Metal Market’s Midwest Ferrous Scrap Index for No. 1 busheling.

The CME contract recorded a surge in deals at the end of January, closing out the month with 1,467 lots - or 29,340 gross tonnes - traded, according to CME’s monthly report. More than one-third of those trades - 502 lots, or 34.2% - took place on January 25, CME data shows.

That momentum continued into early February. Open interest on the contract rose to a total of 2,542 lots or 50,840 gross tonnes on February 6, thanks to the addition of 1,250 contracts or 25,000 tonnes in the first four business days of the month, according to American Metal Market’s calculations, based on CME data.

Michael Cowden, New York, contributed to this report.

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