Tough road ahead for LME’s new steel, aluminum contracts – by Maytaal Angel and Eric Onstad (Reuters U.S. – November 20, 2015)

LONDON – New steel and aluminum contracts to be launched next week by the London Metal Exchange (LME) are expected to attract initial interest from customers, but building up strong liquidity in the current bear market may be challenging.

The launch on Monday is a key element of a strategy by the LME’s owner, Hong Kong Exchanges and Cleaning (HKEx), to boost profitability at the 138-year-old exchange.

Three new contracts in steel rebar, steel scrap and aluminum premiums will go live nearly three years after HKEx bought the LME for $2.2 billion, pledging to widen the scope of the exchange from its core business in key industrial metals.

The LME is the biggest market for base metals such as copper and aluminum, controlling about 80 percent global activity, but it has had less success in other areas such as steel and minor metals.

The LME has worked hard to line up a range of industry players in both physical and financial markets to back the new steel contracts.

“We are aiming to be involved from day one, depending on the market conditions and available liquidity,” said Phillip Price, responsible for market risk management and derivatives function at Stemcor, one of the world’s biggest steel traders.

Crucially, the steel contracts will have several market makers guaranteeing liquidity while U.S. bank Goldman Sachs has joined the LME’s steel committee.

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