Global ferrous derivatives

Global ferrous derivatives

The price indices in our Argus Ferrous Markets service are already widely used by companies in physical supply contracts around the world – for iron ore, coking coal, hot-rolled coil (HRC) and ferrous scrap.

Many of them are now used as the settlement prices for cash-settled futures contracts launched by exchanges to allow users of the derivatives who also transact in the physical market to minimize basis risk while hedging. These cash-settled monthly futures contracts are settled against the arithmetic mean of all the published Argus prices during each calendar month.

Using indices allows companies to trade material on an index-linked basis, not only via fixed-prices sales. This offers significant advantages when prices are volatile, yet the modern finished steel market remains primarily transacted on a fixed price basis. The addition of futures markets offers opportunities to enhance supply chain resilience further.

Subscribe to our free Metals Highlights program

FOB China HRC

The rise of the Chinese steel market has moved in lock-step with the development of the country’s economy. Crude steel output soared since the start of the millennium and that spurred raging raw material demand, which upended the coking coal and iron ore markets.

By 2012, China had established itself as a source of steel without peer, and while export volumes have moderated since then, China still exerts the dominant influence over Asia’s steel pricing.

In March 2019, the London Metal Exchange (LME) launched a new FOB China HRC futures contract to help market participants to manage their price risk. The contract is settled against the monthly average of the daily price assessments published in our Argus Ferrous Markets service, and it has rapidly established itself as the most successful finished steel futures launch to-date.

• LME contract specifications can be viewed here
• Argus index specifications can be viewed here

European HRC

Current European steel capacity is most densely concentrated in an area encompassing parts of France, Germany and Benelux. While capacity has rationalized, the European industry has proven resilient throughout decades of change and faces the problems of raw material and finished goods price volatility as well as globalized price competition.

Steel prices remain regional by nature and, like Asia, Europe is only beginning to experiment with steel price indexation. To support market participants with their price risk management, CME Group launched a North European HRC futures contract in March 2020. The LME has announced plans to launch their own N. Europe HRC futures contract in late 2020.

Argus has been selected as the provider of choice by both exchanges, and both futures contracts will be settled against the monthly average of the daily Argus price assessments provided in our Argus Ferrous Markets service.

• CME contract specifications can be viewed here
• Argus index specifications can be viewed here

CFR Taiwan Ferrous Scrap

Taiwan and Turkey loom large in global scrap markets. Both are global import markets in countries which have outsized electric arc furnace (EAF) capacity, but the ferrous world watches them for different reasons.

The US East Coast and Europe look to Turkey to set bulk scrap price direction. Conversely, the US West Coast & Japanese supply looks to Taiwan to set container scrap price direction, which sets wider Asian scrap pricing.

Container markets parcel sizes are more liquid and frequently-traded markets, and the LME has launched a new Steel Scrap CFR Taiwan futures contract in July 2021 to support market participants hedge their risk.

The contract will be settled against the monthly average of the daily Argus price assessments provided in both our Argus Scrap Markets and Argus Non-Ferrous Markets services.