A shred contract to kick-start ferrous scrap futures

Nasdaq Futures (NFX) has launched a Midwest US shredded steel scrap financial futures contract based on American Metal Market’s Midwest shredded scrap prices. Thorsten Schier outlines the new contract’s merits and the wider picture for ferrous derivatives use in the United States

In the next turn of the screw for the ferrous futures market, Nasdaq Futures(NFX) haslaunchedaMidwest US shredded steel scrap financial futures contract based on American Metal Market’s Midwest shredded scrap prices to give market participants an opportunity to directly hedgetheir exposure to the physical market.

The 10-gross-ton-lot contract is cash settled and will trade 15 months forward under the ticker symbol USSQ. The small lot size was chosen to allow market participants to dip their toes in the water on futures in an industry that is evolving to increasingly consider risk
management tools. The recent successes of the London Metal Exchange’s ferrous scrap futures contract has galvanized the industry
to take another hard look at this avenue to hedge risk and protect revenue.

“Metal Bulletin Group is pleased to provide the pricing for this contract at a very exciting time in the ferrous futures market,” said chief
executive officer Raju Daswani. “It highlights the robustness of our indices and the trust of both the futures and physical industry in what we do.”

The group, of which American Metal Market is a part, has “invested significant resources to ensure the accountability and auditability of our prices, including in state-of-the-art pricing software,” Daswani said.

The contract
The contract is the result of a partnership between NFX and World Steel Exchange Marketing (WSEM) that aims to introduce and
market steel and iron ore markets to global hedgers and institutional investors. “We believe the steel and steel scrap industry is ready for this product and for other ferrous products,” said World Steel Exchange Marketing founder Peter Marcus in a statement.

Trading hours are Sunday to Friday 7 am to 5 pm Eastern Prevailing Time. The contract is being cleared by Options Clearing Corp.

“Liquid futures curves will become an important financial tool for steel mills and foundries, steel scrap processors, middlemen companies, car makers and those in construction and demolition,” added Marcus, who is also principal of World...