Increasing the use of hedging in the steel market is still needed for service centers to effectively manage their risks, according top panelists at the Platts Steel Markets North America Conference in Chicago.

Jeremy Flack, president of service center Flack Steel, reiterated statements made at the Platts conference three years ago: that there is an under utilized opportunity for US steel market participants to manage risk by hedging on financial exchanges.

Flack specifically pointed out the opportunity to grow liquidity for the hot-rolled coil futures market on the Chicago Mercantile Exchange. He believes the industry still needs to embrace the HRC futures market and take the volatility out of the service center business.

One of the major benefits of hedging’s managing of risk is that the metals industry would be able to attract the capital that is currently avoiding it. “Not being hedged is opportunity lost,” Flack said.

“If you call it illiquid, but don’t trade on it you are part of the problem,” Flack added, noting that HRC hedging still lacks volume and “true market-maker liquidity.”

The benefits of hedging for Flack Steel were reflected in a 28% year-on-year volume growth and a 34% gross profit increase in 2015, according to the executive.

Robert Fig, head of physical market sales on the London Metal Exchange, said, “At the end of the day, if you aren’t hedging you are speculating and putting your company at risk.” Fig’s experience in the steel industry has led him to witness that companies are willing to manage their risk regarding the inputs for their products, such as zinc, nickel, iron ore – but are not willing to manage their outputs.

He said that the outputs must be managed. “If prices of the inputs go up but their outputs don’t, profit margins will be squeezed.”

— Michael Fitzgerald