European automakers BMW, Volvo to trial new LME steel contracts

LONDON (Reuters) – European automakers BMW and Volvo plan to experiment with steel contracts to be launched by the London Metal Exchange early next year, a move which 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 next year, and industry sources told Reuters automakers such as Volvo and BMW (BMWG.DE) were interested in using them. Hot rolled coil (HRC) is a flat steel used to make cars and white goods and 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, see how it works.” One source said BMW already uses iron ore derivatives as a proxy for hedging some of its steel costs, so could move with relative ease to trading the new LME contracts. BMW said it is currently… continue reading

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