Physical and Digital Trading: Metals
Transcript of Physical and Digital Trading: Metals
Presented By:
February 10, 2021 | ISRI.ORG ISRI Presentation
Physical and Digital Trading: Metals
1
ObjectivesKey
Hedging technology is available and cost effective for recyclers.
February 10, 2021 | ISRI.ORG ISRI Presentation 2
Futures and options market is growing.
Hedging inventory can have a positive impact on cash flow.
Lock in your risk/profit with hedging.
Scott A. Pollan
ISRI Presentation 3February 10, 2021 | ISRI.ORG
• Math + Chemistry• Geology • Metallurgy• Metals Trading • Cash Flow• Corporate Architecture
TIME
Founder and CEO:
Intern: *Series Exams
Brief History of Hedging• (clay + messengers) (chalk board + telegraph) (open cry pit + telephone)
Today, [virtual exchange + digital messaging]
• Chicago Board of Trade – opened to mitigate risk, 1848
A group of farmers got together because they were exposed to price risk, and worked together to create the open format of modern futures contracts.
4
21st century:• Automated hedging – inventory management combined with hedging. • Automated pricing – instantaneous pricing, algorithmic programming.• Single unit hedging – 20st Steel, 1lb Copper, 1oz Au, Ag, Pt, Pd, etc.• Cloud operations – IOS/Android mobile device access.
*Stats from CME Group, Tornado BullionFebruary 10, 2021 | ISRI.ORG
Vocabulary
• Long futures position (buy) – hedger benefits from price rise.
• Short futures position (sell) – hedger benefits from price fall.
• Put option – buying the right to sell at a strike price.
• Call option – buying the right to buy at a strike price.
• Margin – a good faith deposit.
• Basis – the difference between cash price and futures price. (+-)
5February 10, 2021 | ISRI.ORG
Hedge example #1 (simplified)
1. Customer pulls into the scrap yard with 20,000lb of #1 bare bright.
2. Yard operator prices the scrap
3. Customer and yard agree on price, yard is now long physical copper.
4. Yard contacts hedging broker, places a futures contract opposite the yard position. (buying metal -> selling futures contract, locked-in profit margin)
5. Yard sells metal to consumer, then lifts short futures position.
6February 10, 2021 | ISRI.ORG
ISRI Presentation 7
Participant Poll
February 10, 2021 | ISRI.ORG
Why should I care?
February 10, 2021 | ISRI.ORG ISRI Presentation 8
February 10, 2021 | ISRI.ORG ISRI Presentation 9
*Stats from ISRI, London Metals Exchange, CME Group, S&P Global Platts
Non-ferrous yards
All industries
E-scrap
Auto yards
Ferrous yards
Municipal
Do you trade any of these?
February 10, 2021 | ISRI.ORG ISRI Presentation 10
Facts and Figures: Annual Combined Volume
*Stats from Futures Industry Association
25
21 22 22
25 25 25
30
34
47
0
5
10
15
20
25
30
35
40
45
50
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Bill
ion
s o
f C
on
trac
ts
Annual Futures and Options Volume
February 10, 2021 | ISRI.ORG ISRI Presentation 11
Facts and Figures: Global Volume by Type and Region
*Stats from Futures Industry Association
Type Jan-Dec 2020 Vol YoY Change % Change 2020 Dec OI YoY Change % Change
Futures 25,545,752,860 6,288,109,571 32.7% 246,092,274 -2,056,130 -0.8%
Options 21,221,739,033 5,987,439,641 39.3% 741,167,934 89,014,447 13.6%
Total 46,767,491,893 12,275,549,212 35.6% 987,260,208 86,958,317 9.7%
Region Jan-Dec 2020 Vol YoY Change % Change 2020 Dec OI YoY Change % Change
Asia-Pacific 20,147,147,117 5,643,976,050 38.9% 86,238,477 6,525,123 8.2%
North America 12,847,150,905 2,581,660,231 25.1% 515,930,701 62,829,788 13.9%
Latin America 6,432,591,785 2,333,686,275 56.9% 148,247,914 14,468,712 10.8%
Europe 5,601,015,233 567,407,062 11.3% 209,277,525 -10,693,719 -4.9%
Other 1,739,586,853 1,148,819,594 194.5% 27,565,591 13,828,413 100.7%
Total 46,767,491,893 12,275,549,212 35.6% 987,260,208 86,958,317 9.7%
February 10, 2021 | ISRI.ORG ISRI Presentation 12
Facts and Figures: Global Volume by Category
*Stats from Futures Industry Association
Category Jan-Dec 2020 Vol YoY Change % Change 2020 Dec OI YoY Change % Change
Equity Index 18,609,021,646 6,148,133,308 49.3% 223,615,160 12,646,902 6.0%
Individual Equity 9,897,318,982 3,798,106,253 62.3% 452,612,326 106,956,490 30.9%
Currency 4,523,688,389 585,091,682 14.9% 33,036,840 8,621,006 35.3%
Interest Rates 4,151,838,110 -620,147,711 -13.0% 176,564,030 -42,910,645 -19.6%
Energy 3,152,479,136 610,131,118 24.0% 57,069,053 -2,744,988 -4.6%
Agriculture 2,569,466,044 801,746,687 45.4% 22,934,186 542,669 2.4%
Other 1,447,264,077 558,095,407 62.8% 7,316,299 3,356,807 84.8%
Non-Precious Metals 1,433,275,953 -6,454,691 -0.4% 8,541,312 -173,299 -2.0%
Precious Metals 983,139,556 400,847,159 68.8% 5,571,002 663,375 13.5%
Total 46,767,491,893 12,275,549,212 35.6% 987,260,208 86,958,317 9.7%
February 10, 2021 | ISRI.ORG ISRI Presentation 13
Market Growth: The “Other” category
Rank Contract Jan-Dec 2020 Vol Vol % Change 2020 Dec OI OI % Change
1 Methanol (MA) Futures, Zhengzhou Commodity Exchange 344,876,192 30.1% 1,043,366 18.9%
2 PTA Futures, Zhengzhou Commodity Exchange 322,078,663 3.1% 3,105,291 237.9%
3 Flat Glass Futures, Zhengzhou Commodity Exchange 185,258,846 499.2% 479,325 151.1%
4 Polypropylene Futures, Dalian Commodity Exchange 173,374,543 85.0% 300,284 -14.0%
5 Linear Low Density Polyethylene Futures, Dalian Commodity Exchange 95,802,284 51.0% 264,848 -36.6%
6 Ethylene Glycol Futures, Dalian Commodity Exchange 83,320,391 12.4% 272,023 29.3%
7 Soda Ash (SA) Futures, Zhengzhou Commodity Exchange 68,406,084 4271.5% 203,710 376.2%
8 Polyvinyl Chloride (PVC) Futures, Dalian Commodity Exchange 58,472,901 73.0% 410,043 56.2%
9 Ethenylbenzene Futures, Dalian Commodity Exchange 52,440,684 1224.7% 101,602 17.8%
10 Urea (UR) Futures, Zhengzhou Commodity Exchange 16,646,171 254.7% 55,721 -3.7%
11 Polyester Staple Fiber (PF) Futures, Zhengzhou Commodity Exchange 16,413,948 n/a 114,127 n/a
12 PTA Options, Zhengzhou Commodity Exchange 11,788,268 5984.9% 320,099 636.3%
13 Methanol (MA) Options, Zhengzhou Commodity Exchange 10,163,945 5828.4% 130,753 288.7%
14 Polypropylene Options, Dalian Commodity Exchange 1,598,980 n/a 32,257 n/a
15 Polyvinyl Chloride (PVC) Options, Dalian Commodity Exchange 1,338,451 n/a 49,780 n/a
16 Fibre Board Futures, Dalian Commodity Exchange 1,033,613 -11.8% 848 -93.4%
17 Forward Freight Agreement Futures, Singapore Exchange 958,698 19.6% 127,768 21.2%
18 Linear Low Density Polyethylene Options, Dalian Commodity Exchange 924,492 n/a 27,764 n/a
19 DJ US Real Estate Futures, Chicago Board of Trade 871,932 37.3% 29,253 -24.4%
20 S&P GSCI Excess Return Futures, Chicago Mercantile Exchange 378,879 -0.1% 46,315 41.9%
*Stats from Futures Industry Association
February 10, 2021 | ISRI.ORG ISRI Presentation 14
Facts and Figures: Top 5 Exchanges by Volume
*Stats from Futures Industry Association
Rank Exchange Jan-Dec 2020 Vol YoY Change % Change 2020 Dec OI YoY Change % Change
1 National Stock Exchange of India 8,850,473,823 2,873,254,046 48.1% 13,940,567 4,409,626 46.3%
2 B3 6,307,562,139 2,426,937,856 62.5% 143,732,530 11,439,240 8.6%
3 CME Group 4,820,589,858 -9,455,511 -0.2% 81,940,409 -31,398,383 -27.7%
Chicago Mercant ile Exchange 2,386,096,294 188,906,463 8.6% 42,963,522 -24,527,063 -36.3%
Chicago Board of Trade 1,651,840,795 -214,280,864 -11.5% 23,611,441 -4,979,772 -17.4%
New York Mercant ile Exchange 610,984,409 5,484,319 0.9% 13,225,581 -1,171,247 -8.1%
Commodity Exchange (COMEX) 171,668,360 10,434,571 6.5% 2,139,865 -720,301 -25.2%
4 Intercontinental Exchange 2,788,944,012 532,181,481 23.6% 73,688,383 35,258 0.0%
ICE Futures Europe 1,124,764,380 -1,750,717 -0.2% 43,511,042 -2,541,398 -5.5%
NYSE Arca 1711,701,208 286,749,466 67.5% n/a n/a n/a
NYSE Amex 1578,952,684 204,613,236 54.7% n/a n/a n/a
ICE Futures U.S. 371,506,254 41,917,681 12.7% 30,177,315 2,576,800 9.3%
ICE Futures Singapore 2,019,486 651,815 47.7% 26 -144 -84.7%
5 Nasdaq 2,660,595,514 875,254,310 49.0% 5,027,300 -3,953,484 -44.0%
Nasdaq PHLX 1888,987,070 186,010,024 26.5% n/a n/a n/a
Nasdaq Opt ions Market 1688,942,003 298,934,631 76.6% n/a n/a n/a
Internat ional Securit ies Exchange 1545,827,621 147,495,911 37.0% n/a n/a n/a
Internat ional Securit ies Exchange Gemini 1 392,674,146 208,037,195 112.7% n/a n/a n/a
Nasdaq Exchanges Nordic Markets 76,534,988 -2,717,652 -3.4% 4,811,386 -460,630 -8.7%
Internat ional Securit ies Exchange Mercury 152,111,029 41,402,051 386.6% n/a n/a n/a
Nasdaq Boston 114,846,436 3,782,790 34.2% n/a n/a n/a
Nasdaq Commodit ies 672,221 129,663 23.9% 215,914 20,362 10.4%
Nasdaq NFX 2- -7,820,303 -100.0% - -3,513,216 -100.0%
February 10, 2021 | ISRI.ORG ISRI Presentation 15
New Technology for Recyclers: Internet of Things
Live-stream pricing
Integration of scales, trucks, inventory management software and traders
Dispatch optimization – bin/trailer/vendor tracking
Custom software for recycling industry solutions
Blockchain and the supply chain
February 10, 2021 | ISRI.ORG ISRI Presentation 16
Bring it all together - What does this mean?
Real-time dissemination of price information to teams
Consolidation of inventory management
Integrated inventory management & hedging solutions
Smart phone access
Pound for pound hedge, collateralized assets
February 10, 2021 | ISRI.ORG ISRI Presentation 17
Citations (informal)
• https://www.fia.org/data-resources (Slide 9, 10, 11, 12, 14, and 15)
• https://www.lme.com/Metals (Slide 14)
• https://www.cmegroup.com/markets/metals.html (Slide 4 and 14)
• https://tornadobullion.com/index.php/home/ (Slide 4)
• https://www.isri.org/docs/default-source/commodities/overall-industry-fact-sheet_2018.pdf?sfvrsn=18 (Slide 14)
• https://www.spglobal.com/en/ (Slide 14)
• https://www.icrg.org/sites/default/files/oec/pdfs/ncrg_fact_sheet_gambling_disorders.pdf (Slide 19)
February 10, 2021 | ISRI.ORG ISRI Presentation 18
Next Month..
• Substance Abuse and Mental Health Services Administration(.gov)
1 (800) 622-HELP (4357) | *Open 24/7
• March – Problem Gambling Awareness Month
• ~1% of adult Americans have a Severe gambling problem.*
• 6-9% of young adults experience problems related to gambling.*
Addiction and Mental Health Awareness
*Stats from International Center for Responsible Gambling
February 10, 2021 | ISRI.ORG ISRI Presentation 19
Q&A