Why SoftMetal will be a useful trading tool for alloys metals market
Base metals such as Copper, Nickel, Aluminum and others are traded on exchanges such as LME (London Metal Exchange), CME (Chicago Mercantile Exchange) and SHFE (Shanghai Futures Exchange). Trade parameters on these exchanges have been standardized and because of that, complex metals and alloy that do not fall into preapproved parameters are excluded.
Ferrochromium (FeCr) and ferroalloys in general have multielement mineral composition and each mineral has its own value and individual importance, and each lot of metal have its own cost of production and value in use. While Cr(omium) is the main element and its content is the major contribution of FeCr price (public value component), other mineral components of alloy such as Fe(rrum), C(arbon), Si(licon), P(hosphorus), S(ulphur), e.t.c can differ considerably. Todays requirement to take CO2 footprint into account and find a right balance between market value and cost of implementing carbon footprint limits also has to be addressed during market negotiations between suppliers and customers.
The content of these minerals is typically within the range of 25-50% for Fe, 0.05%-0.01% max for P and impressing 9.5%-0.01% for C. CO2 footprint can also be very different depending on production. Consequently the price deviation for similar alloys could be different by double or even triple digits percentage depending on particular value of above additional elements, hence, reflecting private value component for alloy price. Geographical location (EU, USA, China) can create market price difference over 30% even without adding logistics costs, thus adding another dimension of complexity to the market. With addition of electricity costs as well as carbon footprint, alloys now have even more parameters to be accounted for.
Due to the above reasons, any general standardization automatically disregards individual advantages of of segments of materials with the quality "better" than standard, so called private value. This leads to diluting potential market premiums in prices. On the other hand, standardization within more precise ranges of parameters segmentize the market, thus eroding the public value.
To counter these issues we developed SoftMetal, which is a platform where users can buy and sell physical metals, stored at safe, insurable, financeable and approved warehouses around the globe. While it is not a typical exchange, it provides possibilities for liquid, accountable, transparent, responsible and anonymous 24/7 auction-based trading of metals and alloys containing combination of mineral elements each having its own impact on the price.
SoftMetal will offer possibilities for the compliant parties interested in ferrochrome (and any other goods with similar market structure) to meet on the same floor and negotiate simultaneously with all appropriate counterparties using modern IT technology. It’s mechanism is encrypted and accountably confidential with respect to participants private data. On the other hand, it provides an open and transparent instant feedback for each participant on the real market development for materials and products which were mainly traded via private negotiations in the past.
SoftMetal will start with ferrochromium, the alloy which gives crude steel its stainless resistance capability, as well as many other beneficial properties. Besides FeCr is one of the alloys well-known to the metals industry participants for its importance and non-fungibility combined with its puzzling market structure which is based on different public indexes and confidential negotiations resulting in discounts or incentives.
SoftMetal will provide opportunities to trade multielement commodities such as FeCr and alloys in general with large share of the both private and public value componentы in its price by creating its own liquid mechanism that match the interests of buyers and sellers taking into account both values. Here are the details of how it works:
- SoftMetal provides participants with automated transactions of the “ENFERUM” (Electronic Non-Fungible Encrypted Receipt for Unit of Metal) representing physical metals that are stored in approved independent warehouses and whose quality is certified by approved international surveyor.
- From the point of view of tokenization terminology each “ENFERUM” is a Token for physical metal with quality and other specifications offered by seller. While each buyer can bid/buy for the range individually preset by him, thus making Buyer’s bidding for the certain set of NFT’s as the result making it semi-fungible for this individual buyer. From this point of view ENFERUM represents Client Adjustable Token - CAT, which is a token with ‘fangibility’ regulated from 0 to 100% by the client depending on his needs.
- Each Seller who owns and wants to sell a lot of alloy with particular quality and location can receive an electronic certificate (called "ENFERUM") which is approved by the warehouse and is equivalent to the number of metric tons the Seller wants to sell via SoftMetal. The seller can afterwards anonymously place its OFFER for any number of "ENFERUMS" he has on SoftMetal so that all Buyers interested in the purchase of metal with those parameters will immediately see this OFFER. If the BID with parameters range matching this offer already present on SoftMetal, the deal will be concluded automatically.
- Buyers can define the BID value, based on the individually selected range of parameters including mineral composition, geographical allocation, and carbon footprint (if it is provided by the Seller). At the same time, the buyers could see competing bids on the same trading screen, but only the bids that compete for the selected offers matching their parameters.
- Each transaction requires irrevocable commitment described in Terms and Conditions in the form of OFFER (electronically placed on the SoftMetal) from the Seller to transfer the title to the Buyer as soon as the BID (electronically placed on the SoftMetal) matches the OFFER by price, and all the parameters preset by the parties. This commitment is similar to Unconditional release, traditionally used for offline metal trading.
- Each BID requires an irrevocable commitment of the Buyer for the payment, in FIAT currency (USD). This transaction will be executed by a 3rd party clearer.
- As soon as CBDC (Central Bank Digital Currency) becomes available or StableCoins or other cryptocurrencies will be regulated and more commonly used in the metal industry, it will be easily accommodated by SoftMetal and will simplify the settlement process.
SoftMetal offers participants a confidential and liquid marketplace and transparent pricing on a non-stop auction based on matching the best competitive deals combining both public and private values. This mechanism blends benefits of auction for individual goods and trade-exchangeable commodities on the same trading floor, thus allowing to create fair and liquid trading for FeCr, alloys, and multi-element products in general.
- SoftMetal allows users to see and participate in spot market trades within individually selected parameters as well as create a suitable and transparent assessment of the market.
- SoftMetal is powered by the combination of cryptographic hardware and secured IT technology and ensures that the traders' interests are always kept confidential and protected.
- SoftMetal trading process is encrypted end-to-end: each market participant has access to the same level of information, while details of a certain trade are visible only to counterparties and cannot be accessed by third parties including the platform administrator.
- Counterparties remain anonymous to other market participants, which is similar to a common exchange system.
- While general results of trade including tonnages and price are available for participants, counterparties' private data remains confidential.
- SoftMetal Administration has access only to the publicly available information like any other participant and does not have access to personal trade details, thus making SoftMetal a safe venue to trade on. All the data is kept safe, encrypted, and confidential but accountable for audit. It could be accessed only under permission from parties involved for external audit or other regulatory purposes as described in Terms and Conditions.