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So, in my drunken state last night, I had, yes, another beer with one of my cronies- an aging steel salesmen at the big French steel company, whose name I have forgotten. I don't know why this was the first time I brought it up, but I did, I posed the question about a "steel" trading market...He himmed and hawed and offered very tenuous arguments. I didn't exaccly see the point other than the fact that steel apparently has several grades and therefore not a distinct price....then again, so does oil, no? anyway, your thoughts?

I know absolutely ZILCH about it, but I suspect the variety is greater than in oil. Things like shape (rolled, flat, rods, blah blah blah), type (various mixtures of carbon and other stuff achieve different characteristics) and quality of making (in the early 90's the russian flat was not good enought to make fridges, blah blah blah).Still, in theory it should be possible to identify the most common types, set quality hurdles, and trade futures on it. This way we could achieve the desirable state we already enjoy in most commodities, namely a market nearly completely driven by speculation, having outgrown its original purpose of matching producers and consumers via the intermediary of speculators.(judging from the above rant, you're not the only one to get drunk...)

A friend of mine "traded" steel for Enron for a few months...Now a couple of his former colleagues have started a steel, risk mgmt shop in Houston, Rockwood Steel.The LME is (or at least claims to be) working on it www.lmesteel.com.

Members of my family tell me that steel is on a tear lately. According to one member the price of a sheet of steel has gone from $13 to $26 this year alone. Nonius, I'm with you. I'd like a piece of that action.

huh... so instead of Enron counterparty risk, we can have: Rockwood

Rock wood, homie!

QuoteOriginally posted by: opmtraderMembers of my family tell me that steel is on a tear lately. According to one member the price of a sheet of steel has gone from $13 to $26 this year alone. Nonius, I'm with you. I'd like a piece of that action.a factor 2 only? check out the shipping rates across the pacific...

drunken stupor or not, i received a call last night from a friend in the commercial plumbing business stateside...he's bidding on a 1 year job, and wanted my futures expertise re: how to hedge his materials pricing risk so as not to build too high a variance into his quote...he basically said that there are two primary types of steel, derived from scrap or not, and that his costs for scrap alone have been increasing 10-20% per month over the last year or so...will look into the Rockwood people in the absence of any exchange traded product...

Steel is actually traded right now.. but it is a physical market. There are a number of dealing houses who are looking at it seriously as there are many cheap (but hard to capture, always the issue in commodities) physical spread options out there. I have a friend who was doing all the stuff at enron europe as well, and he seemed to believe it was quite a possibility for a real market, and they were quoting fin swaps on an index but after enron went down that was it, so there is no paper market right now..

QuoteOriginally posted by: sgelbSteel is actually traded right now.. but it is a physical market. There are a number of dealing houses who are looking at it seriously as there are many cheap (but hard to capture, always the issue in commodities) physical spread options out there. I have a friend who was doing all the stuff at enron europe as well, and he seemed to believe it was quite a possibility for a real market, and they were quoting fin swaps on an index but after enron went down that was it, so there is no paper market right now..Steel seems like an obvious candidate for a "price index" paper market. Basically build an index that measures demand and supply for steel (and various derivatives) from independent sources (eg gov't statistics) to infer price, correlate it to historical data from any available source of spot data to quantify basis risk, and then trade against the index.Thoughts?

Besides Rockwood, talk to the chaps at Koch Metals - they are keen on steel and have traded some paper(if their announcements are to be believed). If you're really interested, pm me and I'll get you a name at Koch.Steel prices - depends on the grade but trough to peak has been a factor of 3 for most types of steel, including scrap. It's actually quite an involved market (with many, many grades, shapes, custom builds for clients, etc.), but this was said about coal too, and whilst that isn't a super liquid market, there has been considerable progress. Of course, coal's been on a tear too. I see no persuasive reason why a decent market for, say, hot rolled coil, couldn't develop with the usual suspects involved.I'm more interested in the LME's support for a plastics contract - a natural extension to the energy complex in some ways, but with metal like out put (some storability issues, but otherwise similar).

I think Enron used some govt index.. thats not the problem, the problem is breaking barriers and getting people to look at things differently and willing to optimize their production, refining and trading. SALES!

I mentioned it elsewhere - when companies run into trouble, they unwind their hedging programs in order to realize any liquidity buried there (and if the contract is net-against, they might attempt to bump it off in ch. 11). This is the general state of a large number of players in the steel industry (think of the credit quality of the auto manufacturers as a kind of 'country cap'... i.e. credit quality is limited by the guys at the top of the food chain). Best place to really go then is to middle-market players, but then any trading operation turns into a bank (gotta manage all that counterparty risk). Plus some overhead from derivative use (accounting and other related stuff). I don't think derivs are big with any middle market sector yet (maybe not even IR swaps, for the same reasons).I'm curious if anybody around here can comment directly from experience on jet fuel hedges and how the crap quality of the airline industry figures in. Other guys in the energy chain... that's a bit different story. If you run a coal-fired plant, your counterparty risk is a lot better than if you make radiators, plain and simple.

OTC Oil derivs are very much "banking" products... the credits are dodgy and at the end of the day things boil down to credit.

Jet fuel and heating oil have a pretty strong correlation so the NYMEX heating oil contract (as well as NYMEX crude) is often used as a hedge for jet fuel. Credit is definitely a significant issue in most OTC energy products but NYMEX and ICE, via their OTC clearing operations, are improving the situation, albeit slowly. Can't comment specifially regarding the airlines but I have to assume that they are avoided like the plague by most market participants, possibly excluding the banks that own their debt (and equity). In addition, NYMEX (via ClearPort) offers gulf coast and LA jet fuel (Platts) vs. NYMEX heating oil swaps.