European carmakers to trial new steel contracts on London metal bourse
The experiment by BMW and Volvo could change hedging and pricing of deals in the industry
European carmakers BMW and Volvo plan to experiment with steel contracts to be launched by the London Metal Exchange (LME) early in 2019, a move that could eventually change the way the industry hedges and prices contracts, industry sources said. The LME is launching three hot rolled coil (HRC) steel futures covering Europe, North America and China early in 2019, and industry sources said carmakers such as Volvo and BMW are interested in using them. HRC is a flat steel used to make cars and white goods and is typically bought by consumers on annual fixed-price contracts. The LME’s cash-settled contract will be settled against an industry benchmark. “During the first six months, merchants and traders will put volumes in to get liquidity going,” a broking source said. “If that works, manufacturing companies including BMW and Volvo will ask suppliers to make offers on the basis of LME prices for new, small contracts, to see how it works.” One source said BMW already uses iron ore deriv...
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