Why is physical delivery important for steel futures?
The option of physical delivery, whilst very rarely used, plays an important role in creating LME price convergence. In effect this means that if the LME price appears too high or too low, those in the market will see favourable pricing opportunity and make use of the delivery mechanism. This presence, or threat, of delivery has the result of constantly ensuring that the LME price is in line with the physical market price. It also enables industry to sell material via the Exchange delivery system in times of over supply, and use the LME as a source of material in times of extreme shortage.