Académique Documents
Professionnel Documents
Culture Documents
Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contracts value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. The Globe Logo, CME, Chicago Mercantile Exchange, and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange, and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. CME Group is a trademark of CME Group Inc. All other trademarks are the property of their respective owners. The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Although every attempt has been made to ensure the accuracy of the information within this presentation, CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT, NYMEX and CME Group rules. Current rules should be consulted in all cases concerning contract specifications.
The leading and most diverse financial exchange in the world for trading
Mercantile Exchange; followed by the 2008 acquisition of New York Mercantile Exchange (The oldest of the three, CBOT was founded in 1848.)
Interest Rates
Alternative investments
Deep liquidity in futures and options Worldwide distribution through CME Globex Proven CME Clearing
Metals
Gold Silver Copper Platinum
Palladium
Energy
Crude Oil Natural Gas Heating Oil Gasoline Ethanol
Electricity
Equity Index
S&P 500
Foreign Exchange
EUR / USD JPY / USD AUD / USD GBP / USD CAD / USD CHF / USD MXN / USD
Interest Rate
10-Year US Treasury Note 5-Year US Treasury Note 2-Year US Treasury Note US Treasury Bond
Weather
Temperature
Real Estate
S&P/CaseShiller Home Price Index
NASDAQ-100
Hurricanes
Rough Rice Oats Cattle Pork Bellies Lean Hogs Milk Butter
Eurodollar STIR
30-Day Federal Fund STIR
Steel
Uranium
Coal
30-Year Interest Rate Swap 10-Year Interest Rate Swap 5-Year Interest Rate Swap Sovereign Yield Spreads
Lumber
Steel
Hot-Rolled Coil (US)
Iron Ore
62% FE, N. China (Platts)
Expanding Globally
What is an Exchange?
An exchange is a location, either physical or electronic, where people gather to locate other market participants, determine a fair price and exchange the risk associated with holding on an asset that may fluctuate in price
Futures are traded on regulated Exchanges Exchanges do not trade, influence or set prices. Price discovery occurs at the exchange either electronically or via open outcry in trading pits Now 80% of CME Group volume conducted electronically, enhancing the access, transparency and speed of the market Commodity Futures Trading Commission (CFTC) regulates futures industry just as the SEC regulates stock industry in the U.S. Transactions processed and guaranteed by centralized Clearing House Clearing House requires performance bonds from Clearing Members to secure each transaction Futures are marked-to-market daily, i.e., traders pay losses and collect profits daily
CME Group
Price Discovery
Prices are determined: In a transparent, competitive market By market participants (not the Exchange which is marketplace) Disseminated throughout the world instantaneously through commercial information vendors Price Risk Management Price risk can be shifted to parties with the opposite risk profile or to speculators who provide market liquidity by taking the other side of your trade.
10
Commercial Hedgers
Hedgers use the futures markets to reduce their exposure to adverse price movements by transferring their risk to others. Their goal is long-term price certainty
Examples of Hedgers include: Agricultural companies, oil companies, mining firms, and banks: They want to protect themselves against falling prices for the products or financial assets that they own or produce and need to sell.
Manufacturers, food-processing companies, financial firms: These firms want to protect themselves against rising prices for raw materials or financial assets they need to buy.
12
Investors
Investors accept price risk in the hope they will profit from correctly anticipating the markets movement and direction.
At any moment, based on their position, perspective and time frame, some traders will be looking to buy while others will be looking to sell.
13
The complete book of prices is transparent to every customer and transaction costs and fees are fully disclosed
The volume and deep liquidity across our markets ensures consistently tight spreads in our key products
15
Safety
CME Clearing acts as the counterparty to every trade
The buyer to each seller and the seller to each buyer
No customer has ever lost funds due to clearing member failure despite many major market events 1987 Stock Market Crash, Drexel Burnham, Barings, Long Term Capital Management September 11, Refco, LLC, Recent Credit Crisis ( i.e. Bear Stearns, Lehman) Positions are mark-to-the market twice a day CME Clearing handles more than 98% of all futures and options traded in U.S. More than 2.8 billion contracts are cleared annually Approximately $8B Financial safeguard system Over $100B of high quality collateral on deposit CME Clearing sets the standard used by the global financial services community to manage risk
16
Understanding Futures
Counter (OTC).
For example Steel futures are a derivative of HRC steel and are traded on CMEs
Globex platform. Swaps are derivatives on HRC Steel are traded in the OTC bilateral market (These trades can then be novated into the CME Clearinghouse on a post execution basis)
What is Standardized on a futures contract: Commodity Quantity Quality Delivery date Delivery point or cash settlement
NoteAll futures are traded on an organized exchanged
Benefits
In todays business environment, effective risk management is a business imperative. It encourages investment and economic progress around the world. It also depends on the tangible benefits that CME group delivers:
Diverse user base Proven liquidity Global distribution
20
Hedging
Hedging is simply a way to manage the uncertainty of prices over time (taking the unknowns and making them known).
Hedging minimizes the risk of financial loss due to adverse price changes over time:
Improves visibility of returns Better manage your cash flow
Trying to reduce or eliminate risk by taking two positions that will offset each other if prices change.
Telecommunications Hubs
datacenter)
Indirectly Connected
Connect to CME Globex via your broker, FCM, Clearing Firm, data center /
facilities provider
If you decide to establish a new, direct connection to CME Group and your Clearing firm approves, contact CME Global Account Management (GAM) for details.
Access details on web site at www.cmegroup.com/networkaccess
CME ClearPort
A comprehensive set of flexible clearing services for the global OTC market To substantially mitigate your counterparty risk To provide neutral settlement valuations To access the advantages of security, efficiency and confidence while still trading off-exchange
27
CME Clearing
Reduce counterparty risk Mark-to-market twice daily Never have experienced a default Well capitalized
Approx. $101B performance bonds Approx. $8B of that in excess
Performance Reliability Broad global distribution Enhanced functionality Large scale Flexible architecture
29
Margins
Margin Requirements - Good faith deposits which can be used to cover adverse movements in future prices
Initial Margin Variation Margin Adjusted as market volatility necessitates Margin: Member/Hedge Spec. Initial $800 $880 Maintenance $800 $800
Position Limits
A predetermined position level set by regulatory bodies for a specific contract or option.
Position limits are created for the purpose of maintaining stable and fair markets. Contracts held by one individual investor with different brokers may be combined in order to gauge accurately the level of control held by one party. Spot month position limit: 3,000 Any/All months accountability: 20,000
Marked to Market
At the end of each trading day and all following days that your position remains open, the contract value is "marked-to-the-market"; your account is credited or debited based on that day's trading session. This system gives futures trading rock-solid credit standing because losses are not allowed to accumulate.
If your account falls below the maintenance level (a set minimum performance bond per outstanding futures trade), your broker will contact you for additional funds to replenish it to the initial level. Of course, if your position generates a gain, you can withdraw any excess funds from your account.
HRC
CME Globex, CME ClearPort 20 Short Tons CME Globex: Sunday-Friday 6:00 p.m. 5:15 p.m. with a 45 minute break each day beginning at 5:15pm CME ClearPort: Sunday-Friday 6:00 p.m. - 5:15 pm with a 45 minute break from 5:15PM to 6:00PM Valued in U.S. Dollars and Cents per short ton
Floating Price
The floating price for each contract month is equal to the average price calculated for all available price assessments published for that given month by the CRU U.S. Midwest Domestic Hot-rolled Coil Steel Index.
Settlement Type
Financial
Exchange Rules
34
CRU collects transactions executed for prompt delivery periods Report cash deals collected during weekly sample periods By Month
CRU Calculation
Week 5th
Reporting Date
Settlement Type:
Trading:
Contracts are listed by consecutive months out 18 months Last trading day is business day prior to last Wed. of each month
Other Issues:
Months with 5 Wednesdays will use all 5 prices for settlement of future contract Criteria for inclusion is date of price release, not if assessment falls into month, e.g. 1 st Wednesday of month covers the data for the last week of previous month.
35
U.S. Midwest HRC Steel Monthly Volume and Month-end Open Interest
Month-end OI Monthly Volume
14,000
12,000 10,000 Volume 8,000 6,000 4,000 2,000 0
Aug-09
Aug-10
Feb-09
Feb-10
Dec-08
Dec-09
Dec-10
Feb-11
Apr-11
Apr-09
Apr-10
Oct-08
Oct-09
Jun-10
Jun-09
Oct-10
36
1000.00 900.00 800.00 700.00 $ per ton 600.00 500.00 400.00 300.00 200.00 100.00 0.00
$340
$225
$300
$160
Aug-09
Aug-10
Apr-09
Apr-10
Feb-09
Feb-10
Dec-08
Dec-09
Dec-10
Feb-11
Apr-11
Oct-08
Jun-09
Oct-09
Jun-10
Oct-10
37
Education Center:
www.cmegroup.com/edu
Market Commentary
9+ markets, plus regional updates covered by 11+ analysts
Video Q&As
Recent interviews with customers, analysts, and other industry participants
Featured Books
38
London Harriet Hunnable +44 207 796 7225 Harriet.hunnable@cmegroup.com James Oliver +44 20 7877 4060 james.oliver@cmegroup.com
39
CONFIDENTIAL. This document contains trade secret information. Disclosure, use or reproduction outside Cargill and inside Cargill, to or by those employees who do not have Introduction to the ETI platform except as authorized by Cargill In writing. (Copyright Cargill, Incorporated 2007. All rights reserved.) a need to know is prohibited
Cargill Confidential
Agenda
Cargill Overview Derivative overview
Cargill Confidential
From our modest roots in the United States Midwest, Cargill has grown to be a global leader
Cargill founded in 1865 2010 FORTUNE Global 500 ($US M)* 1. 2. 3. 4. 5. 6. 7. 20. 35. Wal-Mart Stores Royal Dutch Shell Exxon Mobil BP Toyota Motor Japan Postal Holdings Sinopec Allianz Cargill Verizon Communications 408,214 285,129 284,650 264,138 204,160 202,196 187,518 125,999 107,900 107,808 Remains family owned and headquartered in Minneapolis All transactions and relationship with external stakeholders are bound with strong ethics and corporate
responsibility.
Employee numbers total 131,000 in 66 countries Financially stable organization with A2 Long Term debt rating from
Cargill Confidential
Financial
We provide our agricultural, food, financial and industrial customers around the world with risk management and financial solutions. These include financing and exposure to underlying commodity investments.
Food
We provide food and beverage manufacturers, foodservice companies and retailers with products, and healthpromoting ingredients and ingredient systems.
Cargill Confidential
The Energy ,Transportation and Industrial (ETI) businesses use our extensive knowledge of markets, logistics and supply chains to create value for our customers
Petroleum
ETI Platform
Risk Management Services Ocean Transport
Steel Products
We are a global leader in the origination, supply, transportation and risk management of commodities both for Cargill businesses and for our external customers
CONFIDENTIAL. This document contains trade secret information. Disclosure, use or reproduction outside Cargill and inside Cargill, to or by those employees who do not have Introduction to the ETI platform except as authorized by Cargill In writing. (Copyright Cargill, Incorporated 2007. All rights reserved.) a need to know is prohibited
Cargill Confidential
How can companies manage price volatility and the risks associated with the rapid rise and fall of commodity prices?
Cargill Confidential
Hedging and risk mitigation, when correctly done, is a valuable tool and reduce the market risk, i.e. allows to lock in margin Derivatives are only dangerous for those without physical market knowledge and trading/risk management strategy
It is important to understand the physical market fundamentals behind the commodity, and then how to apply derivatives to manage the risk
Cargill Confidential
Steel Derivatives
Role and Benefit Role: Provide Physical delivery of product HRC. Benefit: Ability to hedge and lock in margin on fixed price contracts Sell forward
Cargill
Role and Benefit Role: Provide physical liquidity of product HRC Benefit: Ability to hedge and lock in fixed prices for extended period of time. (ex. Buy fixed price derivative contract and take physical delivery on floating price CRU.
Role and Benefit Role: Bring together buyers and sellers Give market access to end users Benefit: Additional service they can offer their clients.
Financial Companies
Banks Brokers
Hedge Funds
Private money Banks Hedge Funds Pension Funds
Role and Benefit Role: Provide liquidity Benefit: Additional market outlet to invest capital for investors to express their view or hedge their risk
Cargill Confidential
Time
Hedging is removing exposure or risk by offsetting it with something of the opposite risk
9
1 0
CONFIDENTIAL. This document contains trade secret information. Disclosure, use or reproduction outside Cargill and inside Cargill, to or by those employees who do not have Introduction to the ETI platform except as authorized by Cargill In writing. (Copyright Cargill, Incorporated 2007. All rights reserved.) a need to know is prohibited
Cargill Confidential
The forward market curve is in backwardation (future price lower than spot) : Oct 2011 traded recently at 730
$1,000
$900
$ per short ton
Forward curve
$770 $760 $750 $740
$800
$700 $600
$500
$400
4-Mar 1-Apr 29-Apr 27-May 24-Jun 22-Jul 19-Aug 16-Sep 14-Oct 11-Nov 9-Dec 6-Jan 3-Feb 3-Mar 31-Mar 28-Apr 26-May 23-Jun 21-Jul 18-Aug 15-Sep 13-Oct 10-Nov 8-Dec 5-Jan 2-Feb 2-Mar 30-Mar 27-Apr 25-May
$730
$720 $710 $700
$300
CRU
11
Cargill Confidential
850
For paper settlement, on end Oct 2011, the buyer gives the seller the difference ie 730 - 700 = 30 usd/nt Physical effective sales/buy price: Paper transaction : Total transaction price: 700 30 730
For paper settlement, on end Oct 2011, the buyer receives from the seller the difference ie 850-730 = 120 usd/mt Physical effective sales/buy price: Paper transaction: Total transaction price: 850 -120 730
On June 20th 2011 the Oct 2011 HRC price has been fixed to 730, with the paper transactions gains/losses offsetting any losses/gains on the physical market.
12
Cargill Confidential
An end user needs to get a fixed price for 3,000 tons of HR sheets delivered to its plant; 1,000 tons per month over Oct-Nov-Dec 2011. The end user asks a quote from the service center he is working with. Different options: Option 1 The service center can buy the 3,000 tons ex-mill on the spot market and storesit for 4 months incurring interest, using capital and storage space. Option 2 The service center asks a mill for a fixed price for 3,000 tons delivered over Sept-OctNov 2011. The mills are not willing to give a fixed price or provides a price with surcharge or higher price than current spot market price. Option 3 The service center considers the future market (Nymex HRC) and sees that he can fix the price of its coils at $730, assuming it can buy coils on a floating index CRU. Option 3: more details 1. The service center agrees with a mill to get 1,000 tons per month of coils produced in Sep-Oct-Nov and delivered to the service center. The coils will be priced out at the average of the CRU during Sept-Oct-Nov 2011. 2. The transportation and processing time will be less than four weeks so that the service center can deliver the sheets on time to the end user if they buy the prior months production. 3. The service center will fix the price of this floating contract by buying Sept-Oct-Nov on the Nymex HR. The service center can find a seller at $730. With this mechanism in place, the service center is able to offer a fixed price to its customer at $730 + transportation cost + processing cost + margin. Whatever the price of steel CRU is over this period, both the service center and the end user will have their margin fixed thanks to this contract
Cargill Confidential
Sep-11 A B Scenario 1: price strong HR price (cru) $875 FIXED PRICE 730 + cost + margin
C buy physical steel (B-C) gain/loss on physical (A-$735) hedge gain/loss pnl Scenario 2: price weak HR price (cru) FIXED PRICE
$875 $850 $880 ($145) + cost + margin ($120) + cost + margin ($150) + cost + margin you sell your steel at $780 but buy it from the mill at $875 $145 $120 $150 you bought the contract at $730
NEED TO UPDATE
cost + margin cost + margin cost + margin $700 730 + cost + margin $700 $30 + cost + margin -$30 cost + margin $650 730 + cost + margin $650 $80 + cost + margin -$80 cost + margin $640 730 + cost + margin $640 $90 + cost + margin -$90 cost + margin you sell your steel at $780 but buy it from the mill at $700 you bought the contract at $730
A B
C buy physical steel (B-C) gain/loss on physical (A-$735) hedge gain/loss pnl
1 4
Cargill Confidential
Thank You
1 5
Robert Edwards
Managing Consultant - Steel
Presentation plan
3. What is the likelihood that steel prices will remain as volatile in the future?
What factors have led to the recent increase in steel price volatility? To what extent will these factors remain in place? 2
Fact: since 2004 theres been a dramatic increase in price volatility along the whole steel supply chain
Steel prices, January 2007 = 100
450 400 350 300 250 200 150 100 50 0
Ja n97 Ja n98
CRUspi
Iron ore
Coking coal
CRUmpi
Ja n99
Ja n00
Ja n01
Ja n02
Ja n03
Ja n04
Ja n05
Ja n06
Ja n07
Ja n08
Ja n09
Ja n10
Ja n11
Focussing on finished steel prices, the standard deviation in the CRUspi global index has increased almost four-fold since 2004
CRU Steel Price Index (CRUspi), standard deviation
50 45 40 35 30 25 20 15 10 5 0
19 94 19 95
19 96
19 97
19 98
19 99
20 00
20 01
20 02
20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
Meanwhile, the range between the lowest and highest observations seen during any given year another popular measure of volatility has shown a similar increase
CRU Steel Price Index (CRUspi), range
160 140 120 100 80 60 40 20 0
19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10
Pre-2004 average:
Post 2004 average:
12.7 points
51.7 points
This increased volatility has occurred against a back-drop of very high prices and so it was initially buyers who tended to be the most proactive in their response
CRU Steel Price Index (CRUspi), mean
250 225 200 175 150 125 100 75 50
19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10
Pre-2004 average:
Post 2004 average:
93.3 points
167.6 points
Steel industry participants have responded to this increase in price volatility in some imaginative ways
Contract buyers, meanwhile, have moved away from long term, fixed price
contracts and have increasingly shown a preference for index-based pricing programmes.
these programmes can be based on the actual assessment of the market price (index), although tend to be based on the changes in this assessment. 8
Index-based pricing programmes: example 1 Using the absolute index value Hot-rolled coil, US$/s.ton
Feb
Mar
Q1
Apr
May
Jun
Q2
Jul
Aug
Sep
Q3
655
-
625
-
615
-
632
-
558
-
540
-
500
-
533
632
450
-
425
-
510
-
462
533
Example: The price received for Q3 shipments (US$533/s.ton) is equal to the average index value for the previous quarter (US$533/s.ton).
Index-based pricing programmes: example 2 Using the period-on-period change Hot-rolled coil, US$/s.ton
Starting price is arrived at through negotiation and is used to determine the actual price for the first quarter of the programme only: thereafter the previous quarters price is used and the quarter-on-quarter change in the index is applied to this. Q1 650 632 (27) Apr 558 May 540 Jun 500 Q2 533 (99) (27) 623 Jul 450 Aug 425 Sep 510 Q3 462 (71) (99) 524
Jan Starting price Index price Change in index Change in price Selling price 655 -
Feb 625 -
Mar 615 -
Example: The price received for Q3 shipments (US$524/s.ton) is equal to the previous quarters price (US$623/s.ton), plus the index change for the previous quarter (minus US$99/s.ton).
11
CRU makes assessments of over 200 steel market prices on a regular basis. CRUs assessments cover the following commodities:
steelmaking raw materials, including iron ore, coking coal, coke, scrap, pig iron, DRI and HBI, as well as bulk ferroalloys. semi-finished and finished steel products, including billet and slab, wire rod, reinforcing bar, merchant bar, structurals, hot-rolled coil, cold-rolled coil, galvanised coil and plate.
Each of our assessments adopts either level 1.0, level 1.5 or level 2.0 procedures, depending upon the demands of the final market
Level 1.0 Level 1.5 Level 2.0
Frequency: Data collection method: Data requested: Audit clause: Calculation method: Analyst input:
Weekly Electronic via CPCP Price and volume Yes Weighted average Yes
13
Data providers are required to provide both price and volume data.
volume data is equal to the volume of orders to which the contributors price submission refers.
all submitted data should relate to orders that have been placed in the previous week. 15
Level 2.0 assessments Data providers: what do they get out of it?
CRUs weekly price assessments for the market(s) that they contribute data.
access to CRUs steel industry analysts via monthly calls. an annual white paper relating to the market(s) that they contribute data. the opportunity for a CRU steel analyst to present CRUs outlook at their offices. introductory offers for CRUs analysis reports, conferences and license agreements.
16
Data storage.
incoming data is stored on a database for verification if required.
17
Those submissions which fail these checks, and which are deemed implausible, are not included in the calculation of the final assessments. Beyond these specific checks, the data providers agreement gives CRU the right to verify the data submitted.
18
Calculation of the final price assessments is system generated, under the control of CRU Indices.
19
What is the likelihood that steel prices will remain as volatile in the future?
22
The recent increase in price volatility along the steel supply chain has been driven primarily by a renewed period of strong growth in steel demand, driven by emerging markets
World demand for steel, crude steel equivalent, m tonnes
2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
Developed economies stagnation 1%
Post-war reconstruction 7%
BRIC growth 6%
19 00 19 05 19 10 19 15 19 20 19 25 19 30 19 35 19 40 19 45 19 50 19 55 19 60 19 65 19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 05 20 10
23
In fact, the apparent consumption of finished steel in BRIC countries increased at a CAGR of 15% between 2001 and 2010, compared with around 1% for the rest of the world
Apparent consumption of finished steel, m tonnes per quarter
450 400 350 300 250 200 150 100 50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 World BRIC Other world
24
But lets face facts: we say its been BRIC countries that have driven the growth in steel demand its really just been China
Apparent consumption of finished steel, m tonnes per quarter
225 200 175 150 125 100 75 50 25 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 China India Russia Brazil
25
Such growth has put large parts of the steel supply chain under enormous pressures, and at times supply has simply been unable to keep pace with the growth in demand
Baltic Capesize Index
18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Ja n99
Ja n00
Ja n01
Ja n02
Ja n03
Ja n04
Ja n05
Ja n06
Ja n07
Ja n08
Ja n09
Ja n10
Ja n11
26
The upshot is that raw materials and finished steel markets have often ended up in shortage, and its the dipping in and out of shortage that has driven the increase in price volatility
Steel prices, January 2007 = 100
450 400 350 300 250 200 150 100 50 0
Ja n97 Ja n98
CRUspi
Iron ore
Coking coal
CRUmpi
Ja n99
Ja n00
Ja n01
Ja n02
Ja n03
Ja n04
Ja n05
Ja n06
Ja n07
Ja n08
Ja n09
Ja n10
Ja n11
27
A further factor that has contributed to price volatility, particularly for finished products, relates to the physical speculation that many buyers engage in
US service centre inventories of carbon flat-rolled products, m s.tons
9 8 7 6 5 4 3 2
Ja n99 Ja n00 Ja n01 Ja n02 Ja n03 Ja n04 Ja n05 Ja n06 Ja n07 Ja n08 Ja n09 Ja n10 Ja n11
End-month inventories
28
Looking ahead, steel demand is forecast to grow at a similar pace to that seen during the last ten years, although the contributions of BRICs vs developed countries will be closer
World demand for steel, crude steel equivalent, m tonnes
2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
6%
6%
1%
7%
CAGR: 3%
19 00 19 05 19 10 19 15 19 20 19 25 19 30 19 35 19 40 19 45 19 50 19 55 19 60 19 65 19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 05 20 10 20 15
29
And while we do not expect any prolonged periods of physical shortages, the supply chain will at times struggle to keep pace with the growth in demand
30
31
Agenda
Appendices
2
CMA has been owned by the CME Group, the worlds largest derivatives exchange, since 2008
Recently CMA has taken charge of LIQUIDTM - an adaptable screen based system for communicating market prices and holding auctions
4
I ask whether these techniques and services may be applied to the new steel markets and I could become a metals man.
5
Operationally burdensome
Tedious manual tasks Data and Model Risk
How exactly do CMA & Navigate help in the valuations process? All OTC Valuations are the product of: Initial data, Modeling assumptions,
Price Creation, Price feedback Leading to more initial data
(Appendix I)
CMA captures & cleans market data (millions of OTC prices a week)
(Appendix II)
NAVigate extrapolates data sets using market standard techniques NAVigate prices derivative contracts using in house pricing engines
Independent , transparent Valuations with Challenge function Applications Reporting, Outsource difficult to manage model risk and data risk. Third parties: simplify valuation-based interaction between hedge funds, administrators, custodians and other third parties such as auditors.
Bespoke report creation Transparent data inputs Generate reports on the fly
Immediately resolve trade upload issues Flexible mapping for trade ids Add/delete trade on the fly
Work Flow
Tiered user access for collaboration on valuation details Centralize access across departments and third parties
Complete transparency right down to cashflows of each trade Create and manage subportfolios
Integrated Support Integrated IM, email & phone support Screen sharing allows for quick problem resolution Wiki based knowledge base online
Web delivered Intuitive Interactive Challenge Service Clean timely valuation reports
10
In general a complete valuations service in any market needs some or all of NAVigates features
Correctly executed, third party pricing, with the ability to challenge and give feedback provides a healthy environment for market functions. Could CMA NAVigate help aspects of the Steel market?:
Market data collection Market standard pricing techniques Providing a level of third party independence
12
INFORMATION TO FOLLOW
13
Appendices
Appendix I: General Valuations process for OTC Derivative products Appendix II: Unstructured data flow in CDS markets Appendix III Key websites to find out more
Nothing can be priced in a vacuum. Pricing in any market is an iterative process based on feedback:
Collect observable market price data
Extrapolate observable data Price derivative structures using extrapolated data set and calibrated models Receive Feedback from the Market on your price in the form of more prices Collect this new observable market data! Receive Feedback from the Market on your price in the form of more prices Collect this new observable market data!
Adjust assumptions and models. Refine pricing Price derivative structures again
15
Bloomberg mail , attachments and Voice - information is highly unstructured Banks (The sellside) -Provide the liquidity. They are on one side of every deal
16
7/6/2011
17
Thank you
For more information on managing steel price risk, please contact: Patricia Cauley, Director of Metals Marketing patricia.cauley@cmegroup.com 212-299-2346