In his presentation at the SteelOrbis Fall '11 Conference and 65th IREPAS Meeting held in St. Petersburg, Chris Evans, head of business development at the London Metal Exchange (LME), stated that the past two years have been times of unprecedented volatility for steelmakers, their suppliers and customers. According to Mr. Evans, mill utilization rates have risen, although not yet to the highs of the last decade; however, fears remain about the sustainability of the recovery. While explaining details of how the LME works, Mr. Evans said a rolling mill or a construction company may want to lock in input costs. To do so, they would buy on forward basis at the LME price. Also, a scrap processor, a
billet producer or a rolling mill may also want to lock in their sales price. To achieve this, they would sell on forward basis at the LME price.
After giving an example of hedging, Mr. Evans stated the LME was established to help the metals industry manage risk and that physical metal deliveries play a crucial role in daily trading. Physical delivery and the integrity of the metal in the LME's approved warehouses is at the heart of everything the LME does, he said. Although most transactions are settled financially, they can be settled physically. Mr. Evans also gave information about the growing usage of steel
billet futures from the launch in 2008 to September 21, 2011. The figures since the launch are as follows: $16.6 billion of turnover ($6.2 billion in 2011) and 26.5 million metric tons of
billet (11 million metric tons in 2011). Also, the LME has 51 brands in 18 countries with 59.2 million metric tons of listed steel capacity.
Mr. Evans mentioned that
steel futures will grow because there is a need for them. The industry faces price volatility every day, and successful businesses that have good relations with staff, customers and shareholders are successful because they can manage that volatility, he stated at the end of his presentation.