The much-ballyhooed launch of steel futures contracts has withered into trading of billet and bar products in small regional markets overseas. Sheet-steel trading may commence in 2008 but nothing definitive has been announced. Worse, for buyers seeking price transparency, early trading efforts are being aimed at mills, traders and speculators.

Futures contracts have been used as hedges against price/supply volatility in the nonferrous and precious metals markets for more than a century. Futures are traded on exchanges that are anonymous public auctions with prices on public display; in effect, the markets perform the important functions of price discovery and supply assurance. There is no such exchange-based pricing transparency for steel.

The New York Mercantile Exchange (Nymex) first was reported to be "very seriously considering" a sheet steel futures contract as long ago as 1997. The expected Nymex financial contract will be for hot-rolled sheet in coil made in the Midwest in 20 net ton-lots of 0.2 inch thick by 48–60 inch wide material. These contracts will be listed for 18 consecutive months and traded on Nymex's ClearPort electronic clearing and trading platforms with no spot-market sales of actual metal.

The launch of this Nymex hot-rolled steel sheet futures contract has been delayed until sometime in the first quarter, says James Oliver, marketing manager. However, a spokesman says no date has been determined to start trading any steel futures.

The steel industry continues to be skeptical about steel futures trading—already underway to some degree on the Dubai Gold & Commodities Exchange (rebar in the Persian Gulf market) and coming in early 2008 on the London Metals Exchange (billets for rebar in the Near East and Far East).

The rebar contract went into operation on October 29 "to provide the region's steel community with a cost-effective tool to hedge away risk arising from extremely volatile prices," according to the Dubai exchange's press release. Other sources report the rebar contract is a deliverable contract for 10 metric-ton lots of BS4449 (1997) W460B Type 2 rebar from exchange-approved mills.

It is believed the contract, if successful, will be the first of several steel futures contracts that may be developed to serve the Gulf States region. However, traders point out that current rebar futures trading isn't aimed at buyers; instead, it is being marketed to investors who deal either in steel equities or the physical metals market.

Meanwhile, the LME has plans to launch two steel futures contracts for rebar-quality square billet on April 28. One contract will be for Asia Pacific and the other for the Mediterranean region. The trading structure for steel billet contracts in six chemistries and 10 shapes will be identical to the LME nonferrous metals contract for lead and tin, with futures traded out to 15 months.

Inventory will be 65 metric-ton lots of Chinese 20 SiMn (silicon manganese) grade HRB500 billet or Russian GOST 380-94 grade 5sp/ps from exchange-approved mills—and will be available for spot and long-term purchase in Dubai, United Arab Emirates, and the Marmara region of Turkey for the Mediterranean contract and Inchon, South Korea, and Johor, Malaysia, for the Far East contract.

LME specification sheet says the global billet market is around 512 million metric tons/year annually with billets used for rebar production around 160 million metric tons annually. An estimated 20% of rebar billet already is traded internationally by what is described as "an active merchant class." Billet is a growing market, according to the LME, which has bought into the view of some bullish analysts who see 32% production growth by 2010 to 676 million metric tons.