Frequently Asked Questions

1. How does EnronOnline (Steel) differ from other steel sites? A distinguishing feature of EnronOnline Steel is that all transactions are between you and an Enron entity. This means that you can be confident that you are always dealing with a known principle. Other steel sites typically broker steel for producers, distributors and service centers; they are not the principal in any of the transactions. Another advantage of EnronOnline Steel is that we can offer price protection tools to help minimize your exposure to steel price volatility. No other company currently offers these financial risk management instruments.

2. Who are EnronOnline's potential customers for steel products? Any company that has exposure to steel price volatility as well as investment and pension funds, insurance companies, traders, banks and speculators could benefit from our product offerings. Because our initial focus is on flat-rolled products, the producers and consumers of flat-rolled products are likely to benefit the most from our products and services. However, producers and consumers of steel products whose prices move closely with the prices of flat-rolled products can also successfully mitigate their price risk.

3. What is my company's exposure to steel price volatility? If you are a producer (seller) of steel products and do not sell all of your production at a fixed price, you are exposed to steel price volatility; you run the risk of falling prices. We call this being 'long' steel for the tonnage that you sell at floating prices. If you are a consumer (buyer) of steel products and do not buy all of your consumption needs at a fixed price, you are exposed to steel price volatility; you run the risk of rising prices. We call this being 'short' steel for the tonnage that you buy at floating prices.

4. How can I reduce my exposure to steel price volatility? Enron provides a range of price risk management tools to enable companies to reduce/eliminate their exposure to steel price fluctuations. You can use one or more of Enron's products to manage your price risk depending on your specific needs.

5. How does transacting with Enron benefit me as a seller of steel products? Sellers can execute both financial and physical transactions either with Enron. For sellers wishing to hedge their financial risk, we currently offer a simple, fixed-price swap online and will soon offer other option contracts including caps, floors and collars. By using these price protection tools, sellers can actively lock in favorable prices, remove unfavorable prices and take advantage of pricing trends. By transacting with Enron, sellers can limit their risk to declining prices and have the added advantage of:
   • Real-time, competitive pricing
   • Pricing flexibility
   • Principle-based transactions
   • Market liquidity

6. How does transacting with Enron benefit me as a buyer of steel products? Buyers can execute both financial and physical transactions either with Enron. For buyers wishing to simply hedge financially, we currently offer a simple, fixed-price swap online and will soon offer option contracts including caps, floors and collars. By using these price protection tools, buyers can actively manage costs, remove unfavorable prices and take advantage of pricing trends. By transacting with Enron, buyers can limit their risk to rising prices and have the added advantage of:
   • Real-time, competitive pricing
   • Pricing flexibility
   • Principle-based transactions
   • Market liquidity

7. What is Purchasing Magazine? Purchasing Magazine is a prominent industry publication that publishes spot prices for a number of industrial commodities including ferrous and non-ferrous metals, energy and chemicals for over 95,000 subscribers. Enron uses Purchasing Magazine's monthly steel prices as a settlement index.

8. How is the settlement index determined? Purchasing Magazine determines transaction prices for steel on a monthly basis. Purchasing Magazine determines prices by collecting data from over 1,500 buyers and other industry insiders. Their steel prices represent the monthly, FOB Midwest, spot-market purchase order (for delivery in the following month) averages for the majority of that month's transactions. The geographic designation of Midwest is based on an industrial region ranging from western Pennsylvania to eastern Iowa and from central Michigan to southern Missouri. Prices for a particular month are published on the first Thursday of the following month.

9. Does Enron offer risk management products settled against other indices? Enron currently offers its products based on settlement against Purchasing Magazine's prices. Enron is in the process of identifying other reliable pricing sources and will offer risk management products settled against the newly identified indices.

10. Will I be able to purchase physical steel products from Enron in the future? Enron already offers physical steel products offline. To contact one of our steel representatives about our physical offerings, please click here. For your convenience, we plan to offer several of our physical products on EnronOnline by early next year.

11. What other financial, physical and risk management services does Enron provide? Enron offers a variety of offline products and services to its customers many being unique and tailored to the specific needs of its qualified customers. The products and services currently offered are as follows:
    • Physical: Flat products such as hot-rolled, cold-rolled and galvanized steel. Long products are also available.
    • Financial price protection tools for hot-rolled, cold-rolled and galvanized steel. This includes swaps, caps, floors and collars.
    • Inventory Financing: This strategy is advantageous to customers wishing to free up working capital normally associated with purchasing inventory. Enron would make a lump-sum purchase of inventory on behalf of the customer to be reduced based upon a pre-determined drawdown schedule. This product allows a customer to hold a minimal amount of inventory and still ensure timely deliveries.
    • Hybrid Risk Management Products: Hybrid strategies combine the basic building blocks of swaps and options to create highly structured financial products that steel producers and consumers can use to meet specific hedging objectives.
    • Cross-Commodity Swaps: By combining swaps on different commodities, the price of one commodity can be linked to the price of the other commodity. This will effectively isolate the risk to one commodity. Given the over-the-counter financial tools and expertise currently available, it is possible to construct solutions to address virtually any combination of volumetric, pricing, time and seasonal specifications. This nearly unlimited degree of flexibility is what makes these tools so useful and attractive to steel producers and consumers alike.