Steel market needs strong index: US Steel CEO

By Camila Reed

NEW YORK (Reuters) - The global steel industry needs a strong index before any futures market can take off, John Surma, CEO of America's top steel maker United States Steel Corp. (X.N: Quote, Profile, Research, Stock Buzz) said on Monday.

"Steel futures could get off the ground. ... It is a prerequisite to have a good stable index which has to mature," Surma said at the Reuters Global Mining and Steel Summit in New York.

Steel prices have firmed considerably against a backdrop of sharp increases in raw material input costs, such as for iron ore and coke, which steel makers pass on to customers who cannot offset them.

"Some of the difficulty is because there is no real way for our customers to manage risk," he said.

There is opposition from some major producers about a futures contract as they are fearful of losing pricing power, much as there was in the aluminum industry years ago when the London Metal Exchange launched its contract.

Others have added that the steel futures that are being considered by commodities exchanges are impractical because of the way the price information is gathered, which is different from traded base metals.

MEPS, a consultant which collects information on steel and is considered one of the world's leading sources of this data, said recently it feared the potential impact of speculation in the steel market.

Surma said he was not against a paper contract for the industry to trade, although a good stable index was needed first before any volume would be generated on any futures market.

"I think the aluminum market went through a similar thing 20 years ago," he said.

The London Metal Exchange (LME), the New York Mercantile Exchange (NYMEX) and the Shanghai Futures Exchange (SFE), the world's three leading metals markets, are all drawing up plans for futures in steel.

Steel futures are not a new concept. China had steel futures in the 1990s until the country closed some of its unruly exchanges and merged the others. This is the LME's second look at steel after a previous abortive attempt was shelved in 2003 when the steel industry was in poor shape.

The global market for steel is around 1 billion tons a year, valued at $500 billion, while the LME's largest contract, aluminum, is a 30 million tons-a-year market.

Surma said his company did a significant amount of its business through indices, with most of the deals done with customers this way based on CRU index prices.