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Steel is the world’s second-largest commodity after crude oil. It is 15 times the size of all other metals markets combined in terms of metric tons. Furthermore, it is worth twice their value.
Yet, until recently, it was an industry that saw little use for a futures market. That is primarily because major steel participants enjoyed stable long-term prices for the materials they needed.
Price material volatility
Prices for iron ore and coking coal, two of the essential raw materials for steel production, have become far more volatile in recent years. That volatility has sent price shocks rippling through the supply chain. In turn, it has created volatility in finished steel prices that consumers are desperate to contain.
Enter the major futures exchanges. For over 200 years, the London Metal Exchange (LME) has provided the trade – producers, traders and consumers – the opportunity to hedge their risk across a growing range of base metals.
However, only recently have exchanges such as the LME, the U.S.’s CME and the Shanghai Futures Exchange (SHFE) in China introduced products allowing the trade to hedge raw material and finished steel price risk.
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