Scrap and rebar cash settled contracts are set to be introduced by the London Metal Exchange (LME) on November 23. Both products will have lot sizes of 10 metric tonnes, LME’s Head of Physical Market Sales, Robert Fig, tells Kallanish in an exclusive interview.

The two new ferrous metal contracts, LME Steel Rebar and LME Steel Scrap, are cash-settled futures designed to complement the exchange’s existing ferrous contract, LME Steel Billet.

“The lot sizes are quite interesting for us, because they’re quite small, we decided to keep the lot sizes at 10 metric tonnes, and the reason for that is that we want to be inclusive. We want to try to draw in as many producers and consumers as possible” Fig says.

The geographic area of interest for the new contracts “… is largely Europe, because this is where a lot of the scrap ends up”, Fig adds. “We see scrap coming from all over the world, primarily to the Black Sea region, where it is transformed first into billets and into rebar and then exported.".

The scrap contracts will be focused on 80:20 heavy melting scrap, and follows the LME intention of identifying products that can be used as benchmarks. The inclusion of rebar futures meanwhile is expected to attract producers and users involved into the construction market.

The LME introduced its billet contract in 2008, but the product was not as successful as the exchange had hoped it would be.

“I think that part of the issue there is that it was almost an international product, and, unfortunately, steel has to be a regional product, so we decided to bring it [… steel] back from being a global product to a European product,” Fig says.

The addition of the two new contracts will expand the range of products to the whole value chain. “You take scrap, you turn it into billet and you turn it into rebar. And we think that having a physically settled contract in billet allows people to transparently price their metal offer,” the executive adds.

» Watch the video interview with Robert Fig online