Shanghai rebar futures attract more Western trade

Mon Jan 16, 2012

* Citi, Noble, looking to trade Shanghai rebar
* Regulation, currency conversion limits cap growth
* Western investors hope China will loosen restrictions soon

LONDON, Jan 16 (Reuters) - A growing number of western market players are looking to trade steel rebar on the Shanghai Futures Exchange, attracted by high liquidity and exposure to the world's top steel market, although strict regulation is still tempering growth.

Banks such as Citi and steel and commodity traders such as Noble are among the financial and physical players now looking to trade rebar on the Shanghai Futures Exchange (SHFE).

French brokerage Newedge has set up a joint venture with Chinese financial conglomerate Citic Financial, which gained access this year for its customers to the steel rebar and other metals contracts traded on the Shanghai exchange.

"There is an ever increasing number of Western companies seeking access to trade Shanghai rebar and other Chinese exchange markets, which is often tempered due to the regulatory restrictions on non-Chinese companies," said Mike Frawley, global head of metals at the Newedge Group.

More than 1.6 billion tonnes of rebar traded on the Shanghai Futures Exchange in 2011, according to data from the exchange that include both sides of trades.

This dwarfs any steel derivative traded in the West, with the runner-up LME steel billet contract at less than 15 million tonnes traded last year and seeing declining interest.

Liquidity is an obvious advantage of the Asian steel contract over western steel derivatives, but there are also other factors that make this contract particularly alluring.

"It's a very good proxy to trade against iron ore, and it is also a great way to play the Chinese construction sector if you have a view on that," said Macquarie analyst Colin Hamilton.

Steel rebar is a finished long steel product used mainly in construction.

Increasing exposure of Western manufacturing companies to Chinese steel prices also provides an incentive.

"There are many European and U.S. companies, which are quite familiar with hedging, that are moving their operations to China, and they are sourcing metals there, benchmarked against the SHFE prices," said Standard Chartered global head of metals Jeremy East.

"So they need to hedge against this exchange and they look to their relationship banks such as Standard Chartered Bank for solutions. That is a common theme in Europe that we are seeing at the moment."

PLEASE, OPEN UP

Western participants' growth in this market, however, is being capped by China's strict regulation and limits on currency exchange.

The Chinese regulator does not make it easy for non-Chinese companies, financial players in particular, to trade on its commodity exchanges due to worries that high speculation levels could inflate prices.

To have access to a Chinese exchange, a non-Chinese company must set up a local non-financial entity, also known as a wholly owned foreign entity (WOFE).

Western companies that do not already have operations in China are not often willing to go through this process only to gain access to an exchange.

"Legal and regulatory hurdles are often more complex than many companies and investment funds are prepared to undertake," Frawley said.

Financing a new WOFE can also be challenging because currency conversion is restricted.

The yuan is not a freely tradable currency. There are limits on conversion that make it difficult for foreign companies to move money in and out of China.

Trading houses with operations in the country can get around this restriction by converting foreign currency into yuan and vice versa through import/export transactions, but for financial participants it is not as easy, traders and bankers said.

This is pushing some of those financial players that have access to the Chinese rebar contract to limit trading to their own book rather than to open it to clients, preferring to make a different use of the yuan they own.

"Customers can't margin because they can't get hold of yuan remimbi ... We have got a lot demand for remimbi, so we use it for (our own) proprietary trading or we lend it," said a banker at a major European bank.

Many say, however, that relatively soon the Chinese government will start to loosen regulations, opening up the doors to non-Chinese financial players and making yuan convertibility gradually easier.

"I think it is a market that will develop overtime, and it could be that the Chinese regulator will open the door to foreign financial institutions, although it is difficult to say when," East said.

News that Britain is teaming up with Hong Kong to secure London a top spot as an offshore trading centre for the Chinese currency certainly has propped up these hopes.

(sourced Reuters)

Iron Ore-Spot prices fall, outlook bearish

MARKETS / IRON ORE
* Mysteel offers fall $2/T
* Rebar futures slide to 2-month low
* Market concerned about more falls to come
By Ruby Lian and Tom Miles

SHANGHAI, Feb 24 (Reuters) - Spot iron ore prices fell for a third straight day on Thursday amid expectations that prices are likely to drop further due to thin trade and weak steel prices.Prices of Indian ore with 63.5 percent iron content selling to China stood at $193-195 per tonne, including freight, down $2 from Wednesday, industry consultancy Mysteel said."Some traders have stopped offering today as chances for dealmaking are slim, and preferred to keep and sell stocks until prices rebound," said an iron ore trader in eastern China's Rizhao city.Chinese steel mills remained reluctant to conclude deals as they were unable to pass on surging costs to end users facing falling steel prices and weak demand this week.
"Now many mills seem happy to run these down a bit, especially because of recent falls. Until the mills need to build up stocks again, they are likely to be happy to sit and wait on the sidelines," said Christopher Ellis, an analyst with Metal Bulletin Index.
And a few iron ore traders are expecting prices to fall to $175 per tonne in coming weeks if steel prices and demand fail to recover.
STEEL UNDER PRESSURE
Steel prices extended falls on Thursday, adding to concerns that steel mills would mark time in purchasing iron ore due to concerns about profitability.
"Relatively weak steel end user demand seems to have hit sentiment somewhat and this is causing some in the market to question whether the iron ore price has fundamental support at the high levels that we have seen," Ellis said.
The bechmark rebar contract for October delivery at the Shanghai Futures Exchange closed at 4,892 yuan per tonne, down 1 percent from the previous close and also hitting the lowest in nearly two months.
Swaps cleared by the Singapore Exchange were generally lower with the March contract slumping the largest $5.83 to 168.67 per tonne, dampened by concerns over prices and demand.
Three global iron ore indexes also tumbled on Wednesday.
The Steel Index's 62 percent iron ore benchmark slumped the biggest $3.4 to $184.9 per tonne, including freight, the lowest level since Jan. 19.
Platts' 62 percent iron ore index shed 75 cents again to $186.75 per tonne, and Metal Bulletin's 62 percent index fell $1.38 to $186.56 per tonne. ($1=6.574 Yuan) (Reporting by Ruby Lian and Tom Miles; Editing by Jacqueline Wong, sourced:Thomson Reuters)

Steel rebar futures at record high on SHFE

Tuesday, 01 Feb 2011
Shanghai steel rebar futures edged up to a new record for the second straight session on Tuesday, buoyed by higher cost of raw materials like iron ore and coking coal.
The most active rebar contract for October delivery on the Shanghai Futures Exchange was up 0.4% at CNY 5,118 per tonne at 0107 GMT, after rising to as high as CNY 5,121 per tonne.(Sourced:Reuters)

Shanghai rebar hits record as iron ore stays highPublished 7:03 PM, 31 Jan 201

Monday, 31 Jan 2011, Reuters

SINGAPORE - Shanghai steel rebar futures jumped to a record on Monday as raw material iron ore prices hovered near all-time highs on tight supplies.
The most active rebar contract on the Shanghai Futures Exchange for October delivery rose 1.3 per cent to 5,104 yuan per tonne at 1556 AEDT, just off a peak of 5,110 yuan.
It was the second time that the contract chalked up a record level in less than a week, after rising as high as 5,097 yuan on January 25.
"It's the result of surging prices of raw materials over the past few months and iron ore and coking coal prices are still on the upswing," analyst at BOC International Futures Jiang Zhiwei said.

Fewer cargoes out of Brazil and India pushed spot iron ore prices to near $US200 a tonne earlier this month, a record last seen in February 2008.
Tight supplies will likely continue to support prices even with top buyer China off the market during its February 2 to 8 Spring Festival holiday.
"There is less chance of prices going down because of the supply situation but there's a cap on the rise with the Chinese out of the market," a Singapore-based trader who deals with Indian iron ore said.
"The market is very slow and I think the Indian miners are concentrating on building up their stocks before they offer it out."
Indian ore with 63.5 per cent iron ore content was quoted at $US190 to $US192 a tonne, cost and freight delivered to China, on Monday, steady from Friday, Chinese consultancy Mysteel said.
The three major iron ore indexes, based on Chinese spot prices and used by global miners to decide rates for quarterly contracts, stayed near record highs on Friday.
The Platts 62 per cent iron ore index slipped 25 cents to $US186.75 a tonne, just off the record $US187 touched on Thursday.
The Steel Index 62 per cent benchmark edged down 30 cents to $US185.30, but still near its all-time high of $US185.70 reached on January 21.
Metal Bulletin's 62 per cent gauge dipped 11 cents to $US183.76, a tad off the record $US184.43 hit last week.
Indian futures
Two Indian commodity exchanges on Saturday launched the world's first iron ore futures contracts, just days after securing regulatory approval.
But analysts say the contracts are unlikely to be considered global benchmarks anytime soon unless liquidity picks up strongly and with trading limited to domestic players.
For more on India's iron ore futures, click:
At 1530 AEDT, the March 62 per cent fines on the Multi Commodity Exchange (MCX) were up 0.7 per cent at 7,545 rupees ($US164.31) per tonne, while the March 62 per cent fines on the Indian Commodity Exchange (ICEX) rose 0.3 per cent to 8,094 rupees a tonne, according to the bourses' websites.
The price quoted on ICEX is based on cost and freight delivered to China, while the quote on MCX is on a free on board basis.
ICEX is part-owned by state-run MMTC Ltd which is the biggest Indian trader of iron ore, and MCX is the country's largest commodity exchange by turnover.
Before India's futures contracts, trading in iron ore derivatives were mostly done through forward swaps with exchanges from Singapore to the United States and Europe offering clearing services, hoping to draw steelmakers into hedging price risks.
The Singapore Exchange clears the bulk of global swaps and prices were mostly mixed on Friday.
The February contract slipped a dollar to $US179.50 a tonne and March gained $US1.50 to $US174.25.

Rebar futures hit record high on SHFE

Monday, 31 Jan 2011
Reuters reported that Shanghai steel rebar futures rose more than 1% to a record high on Monday.
The most active rebar contract for October delivery was up 1.2% at CNY 5,103 per tonne at 0208 GMT.(sourced:reuters)