It hardly comes as a surprise to steel traders that the LME's billet contracts are accurately tracking the prices where physical business is actually transacting. As a result of companies using the LME futures contracts to hedge some of their price risk, the LME's prices are matching the softening seen in the physical billet market in both its MED and FF (Far East) contract.
The price of billet in the MED contract peaked on the 26th of June at $1267 3M (potential delivery in 3 months time). Since the peak, the price has gradually fallen around $300, having seen a low trade hit $965 early this morning, before finding good two-way trading interest around the $985 mark. Today's official MED Cash prise was $980.
It is not a dissimilar picture for the 3M price on the FF (Far East) billet contract. The price has been falling around $260 since the peak on the 27th of June at $1172. This morning the FF contract traded last at $910 in lighter volume than was observed earlier in the week. The FF contract has recently seen the "backwardation" disappear between the price of Cash (spot) and 3M, last week the Cash price was $50 higher than the price of billet for delivery in 3 months time, this should indicate that more billet is now available for spot delivery. Today's official FF Cash price was $ 900.
Since the LME's hard launch on the 28th of April, open interest has increased 584% in both the contracts and forward positions have been established as far out as January 2009. The LME's trading volumes are to date exceeding 130,000mt and so far 25 producers have registered their billet brands as good for LME delivery, this represents around 40 million tons of production.