Levmet, the partnership between base metals trader Ashley Levett and Trasteel’s Bruno Bolfo, a scion of Massimo Bolfo’s steel trading family, used iron ore derivatives to trade through the period between July and September, when iron ore prices collapsed.
“We had a substantial price risk on iron ore out of South America earlier this year, which we hedged successfully using the SGX, and so rode out that period of price risk and were also able to eliminate risk for our clients and provide further services to them,” Levett, who is working alongside Bolfo on Levmet’s ferrous and raw materials desk, told Metal Bulletin.
Levett and Bolfo began trading in March from the Monaco base of Levmet, which employs ten people on two desks.
The four-person non-ferrous desk trades spreads on the London Metal Exchange on a proprietary basis, under the direction of London Metal Exchange ring-dealing veteran Chris Adams, who joined the company as a director in June.
Adams, who led the growth of Sucden’s ring-dealing membership of the LME after it joined the exchange in 1994, is responsible for developing Levmet’s non-ferrous business.
This includes hedging physical copper, aluminium and nickel for Lugano-based Trasteel, which trades physical base metals as well as steel.
“We got together as a partnership: the Bolfos are a steel trading family that is fundamentally involved in the steel marketplace, and they realised that the steel space was becoming more competitive. They were very forward thinking and really embraced the use of futures as a tool to hedge price risk,” Levett told Metal Bulletin.
The company is looking to hire ferrous and non-ferrous metal traders with strong track records, he added.
While Levett was coming at the business with experience of over 30 years trading non-ferrous metals and futures, Bolfo was arriving from the other direction: the physical steel business.
“About a year and a half to two years ago, we wanted to start developing price risk management to enable us to hedge iron ore offtakes and steel cargoes. We started to learn about derivatives to work out how they would come together with physical steel trading,” he said.
“We want to provide fixed prices at a certain time or in a particular structure, and Levmet is fundamental to that,” he added.
They said that the availability of credit has tightened as a result of banks deleveraging, but pointed out that they were developing strategies to cope with the challenge.
“The shrinkage of credit is a challenge, but we are looking at ways of tackling it: for example, by partnering selectively with other trading companies in certain deals, and also looking at tripartite deals. For example, we’ve just been talking to a bank that is financing some of our physical transactions and will also guarantee our performance on variation margin with the broker,” Levett said.
The latter arrangement works for both bank and trader, Bolfo added, because it offers the latter assurance that the physical material they are financing is also being financially hedged.
Bolfo said he was confident about continuing growth in the use of derivatives to hedge steel and steelmaking raw materials.
“We use derivatives to hedge price risk for our trading and captive business and to provide an additional service to our suppliers and clients in such a volatile and uncertain market. There is more and more interest from steel producers and end users, and we are also in touch with iron ore producers,” he said.