8/3/2012 — CHICAGO – Flack Steel Ltd. has started offering its customers a new kind of service: managing market volatility through the use of hedging strategies, according to the carbon steel flat-rolled service center.

“The bottom line is customers want this, so we are adapting and taking service one step further (by) providing access and advisory on the futures market,” David Feldstein, the Cleveland-based company’s new risk management director, told AMM.

A former trader at the Chicago Mercantile Exchange and Chicago Stock Exchange, Feldstein most recently worked as a futures trader in commodities, currencies and interest rates.

Feldstein sees steel futures trading as just another value-added service that Flack Steel can offer its customers on top of supplying steel, processing and logistics services, he said. “It’s just an evolution of the financial services already offered,” he added.But its not just customers’ risk that Feldstein has been charged with managing. He’ll also be overseeing the company’s own hedging strategies, he said.

“The first thing I was brought here to do is to manage our own risk,” he told AMM. “If we have inventory that isn’t sold – (if) we’re sitting on it and concerned about it in the market – we can sell it forward and lock in our margins. Then we can take that to customers – OEMs (original equipment manufacturers) or other service centers – who can then buy forward.”

Selling forward locks in future pricing, thus providing more predictability of cash flow and decreased volatility, Feldstein said. This type of financing option makes budgeting easier and helps steel resellers and consumers “avoid periods of financial distress,” he added.

Some steel players have been slow to adopt the use of steel futures to date, with a few big-name mill executives particularly vocal in their opposition, primarily on fears that a somewhat illiquid contract could potentially be manipulated by speculators.

Feldstein conceded that a lack of liquidity in steel futures trading has been somewhat problematic, but noted that the market is moving in the right direction. “There is an imbalance. There isn’t enough (liquidity) but that should improve over time. There are smart people in this industry who will see the benefits of (hedging),” he said.

Founded in 2010 by industry veteran Jeremy Flack, the company distributes hot-rolled, cold-rolled, galvanized and painted sheet products to end users in a variety of markets across North America.

(via AMM)