December 04, 2008
SHFE completes steel futures launch preparations
Interfax China reported that the Shanghai Futures Exchange has completed drafting contract items, risk management systems and trade rules for steel product futures. Steel product futures were previously launched in Zhejiang Province in 1993, but were closed two years later due to excessive speculation. In May 2007,
Mr Wang Lihua director of SHFE during China Financial Derivative Conference 2007 told Shanghai Securities News that "The SHFE has completed preparation for rebar and 6.5 mm high speed rod futures trading, including drafting contract items, risk management and trade rules.”
SHFE said that it cannot offer a timetable for the development of steel futures yet, as it is still waiting for approvals from the China Securities Regulatory Commission. However, various local media have been reporting that steel futures are expected to start in the latter half of this year. SHFE handed in the proposal for initiating steel futures with rebar and wire rod in 2005.
China Iron and Steel Association previously opposed the reintroduction of steel product futures on the grounds that it would cause excessive speculation. However, CISA changed its attitude at the end of last year and announced that steel product futures might be a solution to unregulated, electronic steel product trading occurring in major cities.
Mr Qi Xiangdong deputy secretary general of the China Iron and Steel Association in May 2007 said steel product futures will be launched on the SHFE in the near future. He said that “China's status both as a large steel product producer and consumer is a solid basis for the proposed steel product futures trade. China could learn much from the steel product futures system currently trading in Mumbai. Steel product futures will help stabilize China's domestic steel product market and aid China's transformation into a more powerful player in the global iron and steel market.”
China's domestic steel product prices are not currently market led, but set by major domestic steel mills. However, the current price setting system has seen prices lag behind actual market supply and demand forces.
