Flashback to November 2007. If you knew then what the price of steel was going to do in 2008 would you have opted to take advantage of a method to at least give you some margin stability? Would you take advantage of a steel futures contract today even if you were fairly sure that prices were going to drop, at least through the end of this year?
Some hot rolled coil buyers no longer need to ask themselves those questions. We have previously covered some of the high level details and benefits of using the new Nymex HRC steel contract both here and here. But since this contract will be made available starting October 20, we wanted to provide additional details especially since this contract provides some unique price management strategies for steel buyers.
To recap who can take advantage of this contract, it is based on US Midwest domestic hot rolled coil. The contract will settle at the CRU price assessments for prompt physical transactions. CRU will be establishing the underlying price index for the exchange (we will cover how they will do this in a separate post as it is quite complicated). The final settlement price, however, will be determined by an average of that month’s price assessments, according to Nymex. The contract size is 20 short tons offered in consecutive months starting in December 2008.
Buyers of steel can familiarize themselves with some of the specifics by reviewing these links:
Contract specifications can be found at the Nymex website
Steel price information provided by CRU Steel
We will cover in greater detail the value proposition behind this contract, potential risks and the additional information on the CRU price assessment starting tomorrow.