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Steel futures surge in heavy turnover as trading debuts

Shanghai's steel futures jumped on the first day of trading yesterday, as China, the world's top steel maker, joined a global race aiming to set a global benchmark for the metal.

The contracts could provide a hedge against financial risks for related industries and improve the overall competitiveness for the nation's steel industry, said Shang Fulin, chairman of China Securities Regulatory Commission.

On the Shanghai Futures Exchange, steel reinforcement bars for September delivery rose 4.8 percent to 3,561 yuan (US$521) a ton while wire rods settled 6.2 percent higher at 3,398 yuan. Both are widely used in the construction industry.

Turnover totaled 12.9 billion yuan for rebars and 3.6 billion yuan for wire rods.

"We saw heavy buying in the morning session, and some selling in the afternoon. But generally people were buying," said Ji Wu, head of research at Orient Securities Futures Co.

"Trade is somewhat stable and better than we expected. I think investors were rational."

Local spot prices for 6.5-millimeter wire rod were quoted at about 3,220 yuan a ton.

Some analysts said the rises in futures prices signaled that gains in demand for construction and prices are expected with government stimulus measures, though others said investors were still uncertain about price trends under current market conditions. Domestic steel prices tumbled to a six-year low in November from June's record high amid shrinking demand.

The government has since announced a 4-trillion-yuan stimulus package which could trigger demand for steel. Still, steel prices fell back to November's low early this month as stockpiles gained.

China halted its short-lived steel futures in the 1990s due to massive speculation. And the China Iron and Steel Association, which fears speculators may distort already volatile prices, had been opposing futures until 2007.

Zhang Fugui, business manager at steel trading company Shunchao Enterprise, said he would simply use the futures market as another platform for purchase and sale.

"It will take time to familiarize with the contracts and the details. I would still depend for the majority of my business on electronic forward markets, which offer the trade of more product types, and I believe have less risk," Zhang said.

Shanghai, having been preparing the steel contracts for eight years, have now joined other markets, including London and Dubai, in offering steel contracts - another step along the road in the city's bid to become a global financial center.


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