In an effort to extend the services of ferrous derivatives
CME Group Inc.
) plans to launch a U.S. steel scrap contract in autumn, Reuters
reported this Wednesday. Also, the Chicago exchange plans to
capitalize on the increasing interest in price risk management in
this emerging sector.
The contracts are scheduled to be settled against the AMM Index,
in cash terms. This will be the second scrap contract and the 13th
steel and steel raw material contract for the company. Many
financial institutions have shown interest in the contract,
noteworthy among them being J. P. Morgan, a division of
JPMorgan Chase & Co.
Scrap recyclers, small mills and construction companies that
purchase long steel products for manufacturing can explore hedging
opportunities from CME Group's expansion. Also, the recent fall in
interest in the four-year old steel physically-backed billet
futures, an offering of the London Metal Exchange, can prove
advantageous for the company.
The news comes on the heels of the company's continuous efforts
to launch ferrous contracts in China, which is a promising market
for steel products owing to its rapidly increasing investor base.
CME Group is striving to tap the opportunities available in the
emerging markets of Asia. It is working closely with MySteel, which
is assisting the company in accumulating pricing data which will be
used for an expected contract.
In spite of the efforts initiated by CME Group to improve its
position amidst the ongoing weakness in the derivative markets, the
widening of spreads continues to hamper both its top line and
earnings. The near-term outlook looks grim and may continue to
dampen the company's operating leverage until the derivative
markets gain traction.
CME Group currently retains a Zacks #5 Rank, which translates
into a short-term Strong Sell rating. We are also maintaining our
long-term Underperform recommendation on the shares.
CME GROUP INC (CME): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
To read this article on Zacks.com click here.