Monday, 25 February 2008

Steel and Gold: a new derivatives product – and a C@W predictions update


An important ‘business-as-usual’ development: the London Metals Exchange has brought out a steel futures contract which, amazingly has not previously existed. Volatility in world steel prices should amply justify this move and, provided enough creditworthy (!) players enter the LME’s famous Trading Ring to provide liquidity, it looks like a good move. Plenty of commodity traders have been doing nicely, thank you, so this shouldn’t be a problem.

Also doing nicely have been steel manufacturers, given China’s insatiable appetite and other booming areas of demand such as the energy sector. Whisper it softly, and no names, but there’s a bit of *ahem* a ‘sellers’ market’ out there, particularly in speciality grades, and buyers are not at all pleased. ‘Nuff said.

Some relief is on hand, however, in the form of fast-reducing dry bulk shipping costs, which have been at very high levels and representing a huge proportion of costs in the iron and steel industry. As forecast in the C@W Predictions for 2008, freight rates have been slumping - no mystery, a glut of new ships being built.

And a couple of other Prediction updates:

- GOLD blipped above $ 950 this morning (we predict it topping $ 1000)

- CHINESE food price inflation is 18.2% (we predict a riot ...)

ND

17 comments:

Mark Wadsworth said...

Wot? The market has responded to rising freight rates by building new ships? Which drive rates down again? Wonders will never cease!

Tim Worstall said...

Steel futures: the problem has always been defining physical delivery. There are 76 gazillion variations on steel. Cu, Ni, etc, it's been pretty easy to specify allowable deliverables. Steel, not so much.

tory boys never grow up said...

Introducing a forwards contract to handle volatility? I know the theory but it is an interesting question as to whether forward commodities markets have contributed to additional volatility rather than providing protection for a small number of genuine hedgers. I suspect that is an area where the economists jury is very much out.

Nick Drew said...

Mark - yes, it's amazing, isn't it ? (though it has to be said, the swing from peak to trough will be a bit extreme this time - not sure how *efficient* this is)

Tim - hi - this used to be said about coal also, but it's been solved fairly satisfactorily a good few years now: and needless to say the LME feel they've cracked that in the contract design with this one, too.

Nick Drew said...

TB - oh no, another misunderstanding between us ! When I said volatility in world steel prices should amply justify this move, what I meant was: the value of a hedge increases with volatility

I agree, of course, that it is underlying price (delta) that is hedged: hedging gamma is indeed altogether trickier.

What we can say about the vast new wave of traders and investors in commodities - we are all able to dabble there now - is that they have certainly brought liquidity (in the case of energy, sorely missing in the aftermath of Enron), and contrarian viewpoints, which you certainly need for a healthy market.

Ed said...

Ooh good, that means I can get rid of my stash from under my mattress and replace it with paper.

Ellee Seymour said...

I'm really interested in what you say about Chinese food prices, I really fear for what is going to happen in future years regarding food security, which is why I enjoy working for NIAB which is trying to find solutions to this by developing new seeds from research. Please do let me know anything you hear about this. This is not new, it's been happening for a while, families in China cannot afford to buy meat to put on their tables.

Nick Drew said...

Ed - we need a little chat ... (BTW have responded to yr 'midwife' comment)

Ellee - pardon my ignorance, is NIAB into genetically engineered seed ? (am just watching a News item on deep-cold-storage of seeds under the Arctic Circle permafrost in Norway)

Steven_L said...

Well, having an income of less than £25k and liquid assets of less than a third of that no one seems to want to open me a deriavtives account that allows be to bet on commodities. It was ten time more bother opening what is basically a betting acount than taking out a creditcar, and a hundred times harder than backing red on a roulette wheel.

So who cares about steel. I'm more pissed off about the banks taking days to transfer money from one account to the next. I feel like I missed out big today.

Financial service regulation is crap if you ask me.

Steven_L said...

And Nick, whats this bollocks about hedging delta and gammar?

I'll leave it to the maestro:

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." (Warren Buffett)

Nick Drew said...

Steven - I am justly rebuked.

Can't even blame TB (much as I'd like to): I started it

Anonymous said...

I have no money to buy gold - and if I did I would have to sell it...

Nick Drew said...

Mutt - if you go to Bullionvault.com they will give you a gram of gold FREE

no kidding

PS this is NOT financial advice

and I am NOT on commission

hatfield girl said...

Might the demand for sheet metal workers rise enough to tempt away the Speaker?

Nick Drew said...

HG - price goes up, Mr Speaker reverts to metal-basher, a Good Thing: hence we are long steel ... therefore a short position in the LME steel contract called for

classic risk management - see what you can do with derivatives ! (and you a skeptic, madam)

incidentally the LME contract is for billet steel, I feel there is a neat pun to be made about Gorbals Mick's current safe billet ...

Anonymous said...

aaaa片, 免費聊天, 咆哮小老鼠影片分享區, 金瓶梅影片, av女優王國, 78論壇, 女同聊天室, 熟女貼圖, 1069壞朋友論壇gay, 淫蕩少女總部, 日本情色派, 平水相逢, 黑澀會美眉無名, 網路小說免費看, 999東洋成人, 免費視訊聊天, 情色電影分享區, 9k躺伯虎聊天室, 傑克論壇, 日本女星杉本彩寫真, 自拍電影免費下載, a片論壇, 情色短片試看, 素人自拍寫真, 免費成人影音, 彩虹自拍, 小魔女貼影片, 自拍裸體寫真, 禿頭俱樂部, 環球av影音城, 學生色情聊天室, 視訊美女, 辣妹情色圖, 性感卡通美女圖片, 影音, 情色照片 做愛, hilive tv , 忘年之交聊天室, 制服美女, 性感辣妹, ut 女同聊天室, 淫蕩自拍, 處女貼圖貼片區, 聊天ukiss tw, 亞亞成人館, 777成人, 秋瓷炫裸體寫真, 淫蕩天使貼圖, 十八禁成人影音, 禁地論壇, 洪爺淫蕩自拍, 秘書自拍圖片,

做愛的漫畫圖片, 情色電影分享區, 做愛ㄉ影片, 丁字褲美女寫真, 色美眉, 自拍俱樂部首頁, 日本偷自拍圖片, 色情做愛影片, 情色貼圖區, 八國聯軍情色網, 免費線上a片, 淫蕩女孩自拍, 美國a片, 都都成人站, 色情自拍, 本土自拍照片, 熊貓貼圖區, 色情影片, 5278影片網, 脫星寫真圖片, 粉喵聊天室, 金瓶梅18, sex888影片分享區, 1007視訊, 雙贏論壇, 爆爆爽a片免費看, 天堂私服論壇, 情色電影下載, 成人短片, 麗的線上情色小遊戲, 情色動畫免費下載, 日本女優, 小說論壇, 777成人區, showlive影音聊天網, 聊天室尋夢園, 義大利女星寫真集, 韓國a片, 熟女人妻援交, 0204成人, 性感內衣模特兒, 影片, 情色卡通, 85cc免費影城85cc, 本土自拍照片, 成人漫畫區, 18禁, 情人節阿性,

Anonymous said...

情色電影, aio交友愛情館, 言情小說, 愛情小說, 色情A片, 情色論壇, 色情影片, 視訊聊天室, 免費視訊聊天, 免費視訊, 視訊美女, 視訊交友, ut聊天室, 視訊聊天, 免費視訊聊天室, a片下載, av片, A漫, av dvd, av成人網, 聊天室, 成人論壇, 本土自拍, 自拍, A片, 愛情公寓, 情色, 舊情人, 情色貼圖, 情色文學, 情色交友, 色情聊天室, 色情小說, 一葉情貼圖片區, 情色小說, 色情, 色情遊戲, 情色視訊, 情色電影, aio交友愛情館, 色情a片, 一夜情, 辣妹視訊, 視訊聊天室, 免費視訊聊天, 免費視訊, 視訊, 視訊美女, 美女視訊, 視訊交友, 視訊聊天, 免費視訊聊天室, 情人視訊網, 影音視訊聊天室, 視訊交友90739, 成人影片, 成人交友,

免費A片, 本土自拍, AV女優, 美女視訊, 情色交友, 免費AV, 色情網站, 辣妹視訊, 美女交友, 色情影片, 成人影片, 成人網站, A片,H漫, 18成人, 成人圖片, 成人漫畫, 情色網, 日本A片, 免費A片下載, 性愛, 成人交友, 嘟嘟成人網, 成人電影, 成人, 成人貼圖, 成人小說, 成人文章, 成人圖片區, 免費成人影片, 成人遊戲, 微風成人, 愛情公寓, 情色, 情色貼圖, 情色文學, 做愛, 色情聊天室, 色情小說, 一葉情貼圖片區, 情色小說, 色情, 寄情築園小遊戲, 色情遊戲, 情色視訊,