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Steel futures set to debut in Shanghai next year

By Wang Lan (China Daily)
Updated: 2008-12-24 08:05

Trading in China's first steel futures contracts are expected to commence soon, especially after their importance has been singled out by the country's economic planners at a recent meeting to boost domestic economic growth.

Trading of the new contract on Shanghai Futures Exchange (SHFE) would begin shortly after the 2009 Spring Festival, said a source close to the top management of the bourse.

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Steel is an essential commodity close to the core of the government's 4 trillion yuan economic revival plan. The stimulus plan is expected to create a massive demand for steel products for construction of public infrastructure such as railways, highways and bridges.

The bourse is expected to begin trading futures contracts first on wires and screw steel, which are the two biggest steel products in China in terms of consumption. Latest figures show that the combined consumption of wires and screw steel accounted for more than 40 percent of the country's total demand in 2008.

Insiders said the draft contract specifications have been worked out and circulated to clearing members, commodity brokers and institutional investors for opinion.

"Steel futures contracts serve as a pricing barometer and are expected to benefit the entire industry from steelmakers to traders and consumers," Gao Zhu, vice president, China Minmetals Investment and Development Co, told China Daily yesterday.

Xu Dingji, vice president of Liuzhou Iron and Steel Co, told China Daily that he would welcome the opportunity to use steel futures contracts as a hedging tool to minimize risks resulting from sharp price fluctuations. Like many steel producers, Liuzhou Iron and Steel went through a hard year in 2008.

The prices of a wide range of steel products plunged in 2008, with hot rolled strips dropping more than 51 percent to a three-year low of 2,850 yuan from the peak of 5,850 yuan per ton in June.

Spot prices of screw steel in October alone slumped 22 percent, driving numerous steelmakers out of business.

"The industry has been waiting for the launch of steel futures for a long time, " said Xu Xiangchun, a senior specialist at Mysteel, a leading industry consultancy. "The introduction of the new contracts will help form a unified and transparent market price which can reflect true supply and demand," he added.