London, 1 December 2010

The Steel Index (TSI) is supplying the scrap reference price for the world’s first cleared scrap swap contract open to international trade. LCH.Clearnet today launches a clearing service for Over-the-Counter (OTC) scrap swap contracts, settling against TSI’s price for Turkish scrap imports. The reference product is HMS 1&2 80:20 (heavy melt scrap #1 and #2 in an 80:20 mix).

“This is another landmark in the provision of price risk management tools to the steel supply chain and TSI is delighted to be playing a central role,” says Steven Randall, Managing Director of TSI. “Scrap is a crucial steelmaking raw material and prices are notoriously volatile. Turkish scrap prices are a leading worldwide indicator for the steel industry and this contract will be hugely useful to companies grappling with the challenge of price uncertainty.”

Isabella Kurek-Smith, Director Energy and Freight at LCH.Clearnet commented “As a leading provider of price information for key steel products globally, TSI is a natural choice for LCH.Clearnet. With our specialist OTC clearing services and TSI’s reliable reference prices, the steel and scrap swap market now has the opportunity to evolve into a substantial derivatives market.”

LCH.Clearnet’s Turkish Import Scrap Swap contract (TSS) trades in US Dollars per metric tonne, with a lot size of 20 metric tonnes.  Contracts will be cash-settled monthly, using the average of TSI’s published reference prices for Turkish scrap imports in the expiring month.

Arthur Worsley, steel swaps broker at Freight Investor Services (FIS) a leading broker in this field added: “There is an ever greater need for hedging of inputs to the steelmaking process. The scrap contract is designed to let traders and producers tap into the scrap market and hedge this portion of their production costs. This is the world’s most dynamic emerging futures market.” FIS has teamed up with Cleartrade to provide enhanced access to this contract.

TSI’s scrap price index is compiled using the same rigorous methodology as its steel and iron ore indices which are already widely used by steel mills, miners, traders, distributors and manufacturing companies worldwide as the basis for their physical pricing arrangements.

TSI’s steel and iron ore indices are also widely used in the settlement of financial contracts. Its steel index is used by LCH.Clearnet for the settlement of two European hot rolled coil contracts while its iron ore index provides the settlement prices for over 95% of all iron ore swap contracts cleared worldwide, having been selected by the Singapore Exchange ( SGX), LCH.Clearnet, CME Group and NOS Clearing. US$3.5 billion of iron ore swaps have been cleared against TSI’s prices to-date.

TSI revolutionised price discovery in the ferrous supply chain with its methodology built on the collection of transaction prices from industry participants. It has won widespread industry support for its accuracy in reporting steel, iron ore and scrap market prices, with its prices trusted far more than assessments made using telephone polling approaches.

TSI will shortly launch additional scrap reference prices for the US Domestic market and for Indian containerised imports. A coking coal index is also under development, with launch scheduled for early next year.

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