Reuters reported that 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 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.
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.
Mr Mike Frawley global head of metals at the Newedge Group said "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."
According to data from the exchange that include both sides of trades more than 1.6 billion tonnes of rebar traded on the Shanghai Futures Exchange in 2011. 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.
Mr Colin Hamilton Macquarie analyst said "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."
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.
Standard Chartered global head of metals Mr Jeremy East said "There are many European and US 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."
He said that "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."
(Sourced from Reuters)
