<article><p class="lead">July is a new record volume month for the CME Group's North European hot-rolled coil (HRC) contract.</p><p>A fourth-quarter trade at €1,125/t ($1,570/t), brokered by Henry Herbert at GFI, took July volume-to-date to over 40,000t, following an earlier first-quarter versus second-quarter spread at €75/t. So far this month, 40,280t has traded, up from the previous record of 39,200t set last month.</p><p>CME's European contract launched in March last year, just as the Covid-19 pandemic decimated steel production and consuming industries. Nevertheless, it has still traded more in tonnage terms than the CME's more established US HRC contract over the first 17 months of its existence. The equivalent of 300,060t has traded on the European contract, including today's volume, while the US HRC contract traded 280,831t over its first full 17 months. The US contract cash-settles against CRU's domestic US HRC index and has helped cement it as the dominant physical benchmark. It is widely viewed as the most successful finished steel contract outside China. </p><p>The European contract is attracting increasing interest from the physical market, with at least one mill using it to hedge a portion of its price exposure, while some major traders are already using it. Several banks are also now active. In the early days, one bank was the primary liquidity provider for the contract. One of Europe's largest and most influential buyers has already purchased tonnes from a trader that used the contract to offer price and delivery optionality. Stateside participation is also increasing as some look to arbitrages between US and European paper. </p><p>Leading participants in the steel derivatives market suggest it is becoming part of the landscape for those looking to offset their risk. The London Metal Exchange also launched a northwest European HRC contract this month, which settles against the dollar conversion of the <i>Argus</i> NW EU HRC index. The <i>Argus</i> euro-denominated NW EU HRC index is cash-settlement basis for the CME contract. Partially because of its usage in futures trading, the index itself is quickly gaining physical traction. </p><p class="bylines">By Colin Richardson</p></article>
