LME Introduces Futures Contract for Taiwanese Ferrous Scrap

SEATTLE (Scrap Monster): The London Metal Exchange (LME) announced launch of a new futures contract for Taiwanese containerized ferrous scrap imports. The first such contract for the region is scheduled to be launched during Q4 this year.

According to LME press release, the proposed futures contract will be the first seaborne scrap index that references containerized scrap. The contract will help to address significantly volatile differentials between bulk and containerised ferrous scrap prices. Moreover, it could address regional price differentials.

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The Turkish scrap futures contract launched in 2015 has so far remained as the most popular ferrous contract. However, market participants from Asian countries have been cautious about using the contract, primarily on account of the basis risks between the Turkish and Asian markets. Moreover, the Turkish ferrous contracts were based on bulk scrap imports, participants noted.

The Taiwanese futures contract is expected to gain wider regional significance. The smaller parcel sizes of over 1,000t will make it more popular among trade participants. It will aid market participants, especially in South Korea, Vietnam and Japan. Another direct beneficiary would be the Taiwanese construction companies.