Deliveries of billets from LME warehouses in Turkey show that the London Metal Exchange (LME) steel billet futures contract is gaining acceptance in the market.
The withdrawals began in February and so far more than 18,000 mt have been delivered out, with cancelled warrants showing another 12,155 mt could be withdrawn. Flows of metal into and out of LME warehouses indicate growing support for the contract. Already 60,775 mt of Russian and Ukrainian billet have landed at LME warehouses in Turkey, "It's very pleasing to see that our young Mediterranean billet contract is working," said LME's business manager for steel, Lotta Ulfsdotter. "The recent withdrawals of steel from Turkey show the market is becoming more comfortable with the contract," she added.
Some of the billet took longer to deliver out than anticipated due to early teething problems that have now been resolved, she said.
Buying billet futures on the LME is easy using an LME bank or broker, Ulfsdotter said, although there are additional costs associated with taking physical delivery that bring LME prices more in line with the local market.
LME warrants (warehouse receipts) are allocated at random, meaning that each 65 mt lot could be of different specification, size and location.
"Your LME bank or broker usually offers the possibility to swap warrants to guarantee a homogeneous cargo of material," she said. "Those taking metal in this way should expect to pay a premium, though."
In February the Turkish government changed the primary law to enable certain commodities linked to securities to be exempt of VAT when stored in approved warehouses. It is thought that this will pave the way for Turkish domestically produced billet to be exempt from VAT if stored in an LME approved warehouse and this should improve liquidity further, Ulfsdotter said.
The LME has nine compounds listed for storage of billet in Tekirdağ and Kocaeli (Gebze), and is considering more locations in Turkey. Currently 40 registered producer brands are listed for delivery with a production capacity of approximately 50 million mt.
Since the launch more than 1.3 million mt of steel billet futures with a value of $600 million have been traded.