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Shanghai set to launch trading in steel futures
By Fu Chenghao |
February 20, 2009, Friday
|
Print Edition
Print Edition
THE Shanghai Futures Exchange has received approval from the China Securities Regulatory Commission to launch steel-product futures, joining other markets such as London and Dubai to trade the metal.
Neither of the organizations yesterday gave a specific date when the futures trading would start but some brokers said the bourse plans to launch trading on March 9.
"For long, steel-product prices have fluctuated widely, and the market risk is relatively big," the securities regulator said in a statement, adding that domestic steel makers, traders and users lack a benchmark price to guide their operations.
"During the ongoing global financial crisis, copper, aluminum and other nonferrous metal futures have helped related industry firms to hedge against price volatility," it said, adding there is rising demand for hedging from the steel sector.
The Shanghai bourse, the largest of China's three futures bourses by volume, already trades contracts in aluminum, copper and zinc, among others.
While a futures contract could provide a hedging tool against price risks, a steel contract has always been hard to come by because steel, as one of the most ubiquitous of commodities, is the hardest metal to set specifications and price for and there is not a benchmark price for the US$800-billion steel industry.
The contracts the Shanghai exchange proposes to launch are steel wire rods and steel-reinforced bars.
The bourse has been preparing to trade steel contacts for years, but the plan had been opposed by the China Iron and Steel Association until 2007. The association, funded by major mills, then cited complexity of steel products and regulatory uncertainties. China halted its short-lived steel futures trading in the early 1990s due to massive speculation.
"Steel is a big commodity in terms of demand," Cai Luoyi, an analyst at China International Futures. "But it's still doubtful whether it can be big in volume. The market has long expected steel futures, but it needs time to get familiar with them."
The London Metal Exchange launched steel futures a year ago amid strong opposition from steel majors such as ArcelorMittal. Dubai's steel futures contracts also saw low trading volume when they began trading in October 2007.
Neither of the organizations yesterday gave a specific date when the futures trading would start but some brokers said the bourse plans to launch trading on March 9.
"For long, steel-product prices have fluctuated widely, and the market risk is relatively big," the securities regulator said in a statement, adding that domestic steel makers, traders and users lack a benchmark price to guide their operations.
"During the ongoing global financial crisis, copper, aluminum and other nonferrous metal futures have helped related industry firms to hedge against price volatility," it said, adding there is rising demand for hedging from the steel sector.
The Shanghai bourse, the largest of China's three futures bourses by volume, already trades contracts in aluminum, copper and zinc, among others.
While a futures contract could provide a hedging tool against price risks, a steel contract has always been hard to come by because steel, as one of the most ubiquitous of commodities, is the hardest metal to set specifications and price for and there is not a benchmark price for the US$800-billion steel industry.
The contracts the Shanghai exchange proposes to launch are steel wire rods and steel-reinforced bars.
The bourse has been preparing to trade steel contacts for years, but the plan had been opposed by the China Iron and Steel Association until 2007. The association, funded by major mills, then cited complexity of steel products and regulatory uncertainties. China halted its short-lived steel futures trading in the early 1990s due to massive speculation.
"Steel is a big commodity in terms of demand," Cai Luoyi, an analyst at China International Futures. "But it's still doubtful whether it can be big in volume. The market has long expected steel futures, but it needs time to get familiar with them."
The London Metal Exchange launched steel futures a year ago amid strong opposition from steel majors such as ArcelorMittal. Dubai's steel futures contracts also saw low trading volume when they began trading in October 2007.
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