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LME open to consider new ferrochrome, stainless scrap futures contracts: BIR


Market seeks alternative price mechanism following benchmark discontinuation

Market interested in stainless steel scrap futures contract

  • Author
  • Viral Shah    Charles Thompson
  • Editor
  • Juan Tolentino
  • Commodity
  • Metals

The London Metal Exchange would be open to discussing potential new cash-settled futures contracts for stainless steel scrap and ferrochrome, depending on market demand, Alberto Xodo, Product Specialist for Steel & Nickel at the LME, said on May 27 during a panel at the Bureau of International Recycling conference in Copenhagen.

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"One thing we have learned at the LME is that we need to listen to the industry, and if the chromium, ferrochrome and stainless steel industries come together and tell us: 'Help us, we want an LME contract', we would be interested to have this this conversation," Xodo said.

"A physically delivered [ferro-chrome] contract could be difficult because there are very different segments of the ferrochrome market," Xodo added. "However, for a cash-settled futures contract, we would be very happy to discuss with the industry."

This follows the discontinuation of the quarterly European ferrochrome benchmark, or EUBM, price from June 2024 by South African miner Merafe Resources, which was announced on May 20.

Merafe, which has a 20.5% stake in the Glencore-Merafe Chrome Venture, the world's largest ferrochrome producer with a total installed capacity of 2.3 million mt/year, said the EUBM pricing system had become "less relevant" for market participants, adding that "Glencore/Merafe will continue to focus on finding market relevant pricing mechanisms with each customer," but adding that Merafe would not be announcing any of these pricing mechanisms.

Merafe's second-quarter ferrochrome benchmark was last published in March and settled at $1.52/lb, up 5.6% from the first quarter.

Platts, part of S&P Global Commodity Insights, assessed 52% European charge chrome at $1.15/lb DDP Northwest Europe on May 22, unchanged on the week.

Interest in stainless scrap futures contract

Xodo also noted that there has been some market interest in a potential domestic European grade-304 stainless steel scrap futures contract.

"Earlier, it was mentioned that there is no futures market for stainless steel scrap. We don't have any plans, but we are ready to listen," Xodo said, suggesting any stainless scrap futures contract could follow the trajectory of the CFR Turkey ferrous scrap futures contract.

The LME CFR Turkey scrap futures contract, which settles against the monthly average of the Platts daily assessment, has seen 5.45 million mt traded so far in 2024, up sharply from 4.01 million traded in the January-May 2023 period.

Scrap market participants told Platts on the BIR conference sidelines of their frustration at the existing market practice of pricing stainless scrap as a percentage discount to LME Nickel pricing, citing a pricing disconnect between Class 1 Nickel and stainless steel scrap prices.

Class 1 Nickel refers to nickel metal which has a minimum 99.8% nickel content and is physically deliverable to an LME warehouse, while Class 2 Nickel refers to lower-purity nickel products, such as ferro-nickel and nickel pig iron (NPI).

When asked about the possibility of a class 2 nickel contract, Xodo referred to the market as "very segmented," pointing to challenges like the limited physical spot liquidity for ferro-nickel, the highly concentrated nature of the NPI market to mostly China and Indonesia, and noted the smaller size of the MHP (mixed hydroxide precipitate) market.

However, nickel sulfate, a key raw material in the battery cathode supply chain, tends to be priced as a premium over LME Nickel, outside of China.

Platts assessed the daily Europe nickel sulfate duty paid IW Rotterdam premium, with minimum 22% nickel content and maximum 100 ppb magnetic material at $2,600/mt on May 24, unchanged on the day but up $100/mt on the month.