Exchanges, brokers eye steel derivatives

Fri Feb 18, 2011 9:59am GMT

LONDON Feb 18 (Reuters) - As interest in steel derivatives grows, exchanges are increasingly looking to launch steel contracts, and brokers have started to offer steel swaps.

Below are details of existing on-exchange and over-the-counter (OTC) contracts.

SHANGAI FUTURES EXCHANGE (SHFE)

The Shanghai Futures Exchange trades two construction steel products -- reinforcing steel bar (rebar) and wire rod -- and has been one of the biggest beneficiaries of China's booming steel market.

On the first day of trade, on March 27, 2009, total volumes across Shanghai Future Exchange rebar contracts <0#srb> represented 1.8 million tonnes of steel. Daily trading volume on Feb. 10, 2011 was almost 4 million tonnes.

Annual rebar futures trading volumes rose from 3.23 billion tonnes in 2009 to 4.51 billion in 2010. The SHFE includes both sides of the deal in its volumes count, however.

LONDON METAL EXCHANGE (LME)

The LME launched two regional billet futures contracts in April 2008 -- one Mediterranean and one Far East contract. The two contracts subsequently merged under the Mediterranean contract FMD3=LX in July 2008. [ID:LDE66Q26L]

The contracts started open electronic trade in February 2008 and then moved to open outcry trading on the floor of the LME in April of the same year.

Total steel futures trading volumes grew to 12.4 million tonnes in 2010 from 2.0 million in 2009. The LME said it is now considering the launch of other steel contracts, including a hot-rolled-coil contract. [ID:nLDE7181A9]

Through the new global steel contract, participants will have access to warehouses in Malaysia, South Korea, Turkey, Belgium, Netherlands, United Arab Emirates and U.S. locations New Orleans, Chicago and Detroit.

CHICAGO MERCANTILE EXCHANGE (CME)

CME Group (CME.O: Quote), the world's largest derivatives exchange following its absorption of the New York Mercantile Exchange, launched its U.S. Midwest Domestic Hot-Rolled Coil (HRC) steel futures contract in October 2008.

It trades electronically with 18 consecutive contract months and settles against an index developed by Commodities Research Unit (CRU).

The contract size is 20 short tons, with a minimum price fluctuation of $5 per short ton. Annual trading volumes grew from 244,831 metric tonnes in 2009 to 392,140 in 2010.

CME Group is currently looking to launch new steel contracts.

DUBAI GOLD AND COMMODITIES EXCHANGE (DGCX)

The Dubai Gold and Commodity Exchange launched its steel rebar contract in October 2007. Volumes topped 500 lots after six to eight weeks but faded by the end of December 2007.

Since the economic crisis and in particular the slowdown of the construction industry in the last quarter of 2008, there has been no trading activity in the DGCX steel rebar futures contract, the exchange said.

The Dubai steel contract is for rebar, used in construction. Each contract is for 10 tonnes of grade W460 rebar of 12 metres and allows for both cash settlement and physical delivery, the latter at DGCX-approved delivery points in Dubai, which can be used as warehouses for financing under similar terms as per LME warrants.

NATIONAL COMMODITY & DERIVATIVES EXCHANGE

India's National Commodity & Derivatives Exchange Ltd (NCDEX) launched Mild Steel Ingots futures in 2005 and Sponge Iron futures in 2006. The contracts underwent several changes as the exchange attempted to bring them in line with the market, so that participation could grow. Today only one contract - Steel Long -- trades on the exchange. Traders say the contract is an important benchmark for the secondary steel market.

Delivery - in billets and ingots form - is compulsory and in eight centres across India.

FREIGHT INVESTOR SOLUTIONS (FIS)

Freight and iron ore derivatives broker FIS launched five steel swaps contract at the end of 2010: three hot rolled coil (HRC) contracts (North Europe, South Europe and China), a China domestic rebar contract and a Turkish scrap import swap.

The European HRC contracts settles against The Steel Index (TSI), while the Chinese HRC contract settles against Cleartrade China Steel Index (CCSI). All five contracts are offered with clearing at LCH.Clearnet.

Bids and offers on the market are averaging at between 1,000 tonnes per month and 25,000 tonnes per month. Fewer than 120 trades were done in the last few months.

(Editing by Jane Baird,sourced:Thomson Reuters)

Tags:Exchanges, brokers,steel derivatives,over-the-counter(OTC)contracts,Shanghai Future Exchange(SHFE) rebar future trading, LME, Mediterranean, Far East contract,CME Group,New York Mercantile Exchange,U.S.Midwest Domestic Hot-Rolled Coil(HRC),steel futures contract,DGCX steel rebar future,NCDEX,Mild Steel Ingots futures, Sponge Iron futures,Freight and iron ore derivatives broker FIS, TSI, CCSI, LCH