LME to launch new ferrous futures initiatives to boost screen trading liquidity

The London Metal Exchange is to launch a number of new initiatives to boost the screen liquidity of its cash-settled ferrous futures contracts, it announced during the LME Focus Day event on Oct. 27.

“We are delighted with the continued growth of our scrap and rebar contracts. The new liquidity windows on LMEselect are designed to enhance liquidity, and together with the new liquidity provider program we hope to see further expansion of the contracts’ user base,” Robin Martin, Head of Market Development at the LME, said.

“In response to industry feedback we have now made 15-minute delayed LMEselect quotes freely available on our website — an additional step towards bringing these instruments into the day-to-day price risk management toolset for physical market participants.”

The LME will launch two new ferrous liquidity provider (LP) programs, which will run from Nov. 1, 2022, to Oct. 31, 2023, as well as a daily liquidity window starting Nov. 1 for the LME Steel Scrap CFR Turkey and LME Steel Rebar FOB Turkey contracts, both of which settle against the monthly average of the respective physical assessments by Platts, part of S&P Global Commodity Insights.

The LME will also make bid-offer quotes for steel futures contracts from LMEselect, the exchange’s electronic member-to-member trading system (for the steel contracts), freely available on lme.com from Nov. 1.

“We are fully behind this effort to help build liquidity on the LME ferrous futures — making the forward curve available on lme.com will increase transparency and allow anyone, from physical players to hedge funds, to access the forward curve and build interest,” Julian Verden, managing director at global steel trader Stemcor, told S&P Global.

Starting Nov. 1, the LME’s daily liquidity window initiative for the LME Steel Scrap CFR Turkey and Steel Rebar FOB Turkey contracts will run between 16.00-16.30 UK time on LMEselect, for contract months 2, 3, and 4 ahead on the forward curve.

“The LME’s move to further encourage screen-based liquidity and trading in the [Turkey] HMS and Rebar futures contracts will help complement the liquidity already available via the call-around-broker market,” Steve Potter, Senior Director at US steel distributor Flack Global Metals, said.

“The new planned liquidity window as well as increased emphasis on Months 2, 3, and 4 will help aggregate two liquidity pools across time zones, as well as help encourage new market participants who focus on relative value and macroeconomic strategies to participate in the ferrous space,” Potter said.

One of the two LP programs will focus on the LME Steel Scrap CFR Turkey and Steel Rebar FOB Turkey contracts.

The participants of this LP program will each be required to provide bids and offer volumes of five lots (50 mt) each on outright trades – i.e. buying or selling contract for one particular settlement (or “prompt”) date – for the most liquid contract months 2, 3, and 4 on the LME scrap and rebar forward curves.

This means that, with four LP participants, up to 200 mt per side could be available on bid or offer for these contract months.

LP participants will also be required to provide a bid-offer spread for outright trades of $10 for the LME CFR Turkey scrap contract and $15 for the LME FOB Turkey rebar contract.

The LME CFR Turkey scrap futures contract has seen its highest annual trading volumes since 2018, with 3,531,400 mt traded between Jan 1-Oct. 26 in 2022, as sharp volatility in the physical CFR Turkey premium HMS 1/2 (80:20) market attracted greater futures interest.

The LME FOB Turkey rebar contract has seen its all-time highest annual trading volume since the launch in late 2015, with 849,460 mt traded so far over Jan 1-Oct. 26 in 2022. The next highest annual volume was in 2017 when 644,300 mt was traded.

The second ferrous liquidity provider program starting Nov. 1 will cover other LME ferrous futures contracts, including Steel HRC FOB China, LME Steel Scrap CFR Taiwan, and LME Steel Scrap CFR India, of which the latter also settles against the monthly average of the Platts physical assessment.

— Viral Shah