For the last decade, China’s infrastructure growth has meant a steadily increasing demand for steel, and an increase in steel prices globally. With it has come volatility for all the parts of the steel supply chain that go into making bridges and roads and buildings, including iron ore, steel scrap, coking coal and steel billet.
But growth isn’t only happening in China. The World Steel Association expects worldwide steel consumption will grow at a 3 percent rate in 2014.
This kind of widespread growth, and potential market volatility, could mean a larger role for steel futures. In the runup in world demand, futures became a viable tool for managing price risk for firms like steel mills and appliance manufacturers. Though at different ends of the supply chain, these kinds of firms could find the appropriate method of off-setting risk in a suite of products CME Group calls its Virtual Steel Mill. As the rate of growth in China and other emerging economies slows, the products may once again be the place where firms in the steel supply chain can protect against volatility.
The infographic above displays how that supply chain works, and the Virtual Steel Mill of risk management products that aligns with each area.