It is understandable that
players in the scrap sector have approached CME Group
Inc.s new ferrous scrap futures contracts with a certain
level of skepticism.
After all, people in the scrap
world have been discussing, studying and arguing over the
concept of ferrous scrap futures for at least a decade, and now
that such instruments are actually a reality it has renewed the
talks in the most serious way possible.
It is undoubtedly true that
scrap futures contracts arent the right answer for every
business; no financial tool or market choice is a
one-size-fit-all solution. It is equally true that futures
immediately made sense for some businesses, as evidenced by an
early--albeit so far lukewarm--reception to them.
But whatever your feelings on
the matter, the smart and prudent thing to do is to approach
the new contracts with an open mind; study them and learn the
details before making a decision either way. To that end, this
issue features a special section, designed as an introduction
and primer on scrap futures contracts.
A lot of people are wrestling
right now with the question of whether scrap futures are a
threat or a tool: Will they help some kinds of businesses and
hurt others? Can this market be manipulated in ways that will
be detrimental to the industry? Will they create a more level
playing field? Is hedging against future value a wise business
strategy? It is reasonable and advisable to ask and research
these questions, plus many more.
But always keep in mind that,
like other business theories and practices, participants
shouldnt expect perfection, nor should they unfairly use
such expectations as a yardstick to measure the new idea.
Futures contracts provide risk management, not risk
elimination. When approached with this attitude, it becomes
clear that the financial instruments can be viewed as another
tool in the toolbox designed to help, rather than seen as a
weapon designed to threaten the industry.