Steel is a metal that is considered to be the most important raw material used for modern-day construction: it is therefore of key importance in commodity trading. It is a metal alloy that contains mostly iron, with a small carbon content that varies depending on the sellable grade. It is one of the most common materials in the world, and the global production rate of steel is up to 20 times higher than all non-ferrous metals combined. Steel is hard and strong, heat-resistant and has poor conductive properties, making it ideal for a huge range of applications.
The primary special feature of the steel commodity is its widespread global application as a building material. Nearly every market sector, whether it be of a residential, commercial or industrial type will inevitably rely on steel in some capacity. Thus the steel market is huge and ever-expanding. This is an appealing prospect to traders for obvious reasons: steel trading can be extremely profitable, and unless an unexpected drop in demand for steel occurs will continue to be so.
Steel futures contracts are traded on the New York Mercantile Exchange (NYMEX) and the London Metal Exchange (LME). It is traded at NYMEX under the contract code HRC (but for the exchange’s clearing system, the code changes to HC), while the LME has a variety of contracts.
The main consumer market for steel is the construction industry, which accounts for approximately 20% of all steel usage worldwide. Steel is used in girders, piping and many other construction applications. Most large buildings are erected around a steel frame for support, and steel is also used to make the nuts and bolts that are essential for any construction project. Steel also enjoys popularity in the automotive industry, with the majority of car bodies being made of steel, and aerospace industry, as well as the cutlery industry. In a similar vein, stainless steel is used in the manufacture of surgical instruments and wrist watches. It is also one of the primary materials for constructing railway tracks, and electricity pylons are frequently constructed out of steel. China, the US and Japan are both the leading consumers of steel, and the leading producers. China itself accounts for around a third of all steel produced, and it consumes almost the same amount. Steel is also one of the most frequently recycled materials in the world, with around 85% of all steel in the US being recycled.
The price of steel is subject to wild fluctuations across the global commodity market, and the steel market is not known for its predictability. This is because the steel market price is affected by a wide range of factors. For example, LME steel prices can be affected by periods of economic growth, as periods of economic growth usually result in more construction, requiring more steel. This higher demand will thus equal a higher price for steel futures. For those monitoring the steel price news from the LME, the LME steel price may also be affected by shifting foreign demand. China consumes massive amounts of steel, and generally is a big importer of steel as well, but this could change as it becomes more self-sufficient by significantly developing its own steel industry, and improving recycling procedures. This increased capacity to produce steel will ultimately lead to lower prices, as the supply will begin to outstrip the demand.
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