The Steel Derivatives concept began life as an off-shoot of 'Stemcor Projects & Contracts' (SPC), a division of the Stemcor Group, the world's largest independent steel trading organization. SPC's mission was to supply competitively-priced steels to the world's oil, gas, and power generation companies for their steel-intensive projects such as pipelines, tank storage farms, power stations, petrochemical plants, and off-shore platforms. These projects demanded fixed price steel supply contracts for periods of 6-24 months. With the involvement of financial institutions and its own in house steel procurement expertise, SPC structured novel deals that provided its clients with fixed priced steel, whilst at the same time provided its steel suppliers with prestigious projects at market competitive returns.
As steel price volatilities increased in the latter 1990s, the value at risk of SPCs traditional structured solutions was threatening the sustainability of its activities. Yet in depth exposure to the oil, gas, and energy business models gave SPCs founder and Managing Director, John Short, a critical insight into oil, gas, and energy derivatives - exchange traded futures, and 'over the counter' (OTC) options and swaps instruments. If steel could develop such instruments - lock-in its cash flows, hedge away the negative impacts of price uncertainty whilst retaining the opportunity to participate in favourable movements in price - then price steel's volatility could be managed.
In 2000 Short left the Stemcor Group to pursue the vision of exchange traded steel futures. An informal consulting company was born with a focus on structured finance and risk management techniques in, and steel procurement for, steel-intensive projects in the oil, gas, and general construction industries. Having refined his structured trade and commodity finance skills at a City investment bank, Short went to Oxford University where he led team of finance MBAs on two distinction-graded theses on Steel Futures. The collective knowledge from the MBA team and Oxford faculty was then forged with that of the original consultancy. In 2002 the consultancy was awarded projects examining various aspects of steel futures, options and swaps in Europe, Middle East, SE Asia and Far East.
The culmination of this work led to Short's paper submitted to the Steel Futures I seminar in London (December 2002) declaring that technical design of steel futures contracts was essentially complete. To a large extent, all that remained was 'buy-in' - the desire of direct and indirect participants of the global steel industry to understand and grasp the opportunity to use steel futures in their day to day business.
In January 2003, after further work in Asia, the consultancy was retained exclusively by the LME for their Steel Futures Project. Along with Laplace Conseil, who provided the LME with an initial study, Steel Derivatives is proud to be associated with the LME, whose expertise in running a futures exchange and hosting metals contracts has provided the platform to bring these steel contracts to market. Steel Derivatives remains closely involved with the LME, driving the process forward and heading various 'steel working parties' charged with refining various contract elements in consultation with industry. Meantime our work on OTC products embraces a much wider community of financial instruments and instrument providers, from basic swaps through to complex option products. Furthermore we continue to offer the advisory services on which the company was founded - structured finance, steel procurement, and risk management in relation to steel intensive projects.
As steel price volatilities increased in the latter 1990s, the value at risk of SPCs traditional structured solutions was threatening the sustainability of its activities. Yet in depth exposure to the oil, gas, and energy business models gave SPCs founder and Managing Director, John Short, a critical insight into oil, gas, and energy derivatives - exchange traded futures, and 'over the counter' (OTC) options and swaps instruments. If steel could develop such instruments - lock-in its cash flows, hedge away the negative impacts of price uncertainty whilst retaining the opportunity to participate in favourable movements in price - then price steel's volatility could be managed.
In 2000 Short left the Stemcor Group to pursue the vision of exchange traded steel futures. An informal consulting company was born with a focus on structured finance and risk management techniques in, and steel procurement for, steel-intensive projects in the oil, gas, and general construction industries. Having refined his structured trade and commodity finance skills at a City investment bank, Short went to Oxford University where he led team of finance MBAs on two distinction-graded theses on Steel Futures. The collective knowledge from the MBA team and Oxford faculty was then forged with that of the original consultancy. In 2002 the consultancy was awarded projects examining various aspects of steel futures, options and swaps in Europe, Middle East, SE Asia and Far East.
The culmination of this work led to Short's paper submitted to the Steel Futures I seminar in London (December 2002) declaring that technical design of steel futures contracts was essentially complete. To a large extent, all that remained was 'buy-in' - the desire of direct and indirect participants of the global steel industry to understand and grasp the opportunity to use steel futures in their day to day business.
In January 2003, after further work in Asia, the consultancy was retained exclusively by the LME for their Steel Futures Project. Along with Laplace Conseil, who provided the LME with an initial study, Steel Derivatives is proud to be associated with the LME, whose expertise in running a futures exchange and hosting metals contracts has provided the platform to bring these steel contracts to market. Steel Derivatives remains closely involved with the LME, driving the process forward and heading various 'steel working parties' charged with refining various contract elements in consultation with industry. Meantime our work on OTC products embraces a much wider community of financial instruments and instrument providers, from basic swaps through to complex option products. Furthermore we continue to offer the advisory services on which the company was founded - structured finance, steel procurement, and risk management in relation to steel intensive projects.
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