Steel rebar volumes rise to a record high

(CHANDRA BALAN)   

Dubai Gold and Commodities Exchange (DGCX) Steel Rebar volumes have steadily progressed, touching a record daily volume of 2,960 million tonnes in six weeks since the trading started on the exchange.

Commenting on the growing popularity of the contract, Ahmed bin Sulayem, Chairman, DGCX, said: “The DGCX Steel Rebar Futures contract – the world’s first in many ways – firmly reflects our drive to develop the regional commodity derivatives market.”

DGCX yesterday announced Turkey’s Kaptan as its 10th approved steel producer. With its recently Cares-approved two plants in Tekirdag, Kaptan has elevated itself to being one of Turkey’s leading steel rebar suppliers to the UAE. It is a significant addition to the robust basket of steel rebar available for futures trading.

Kaptan’s approval comes amid increasing demand for the DGCX Steel Rebar Futures contract.

“Since its launch, steel rebar futures have evoked positive response from the steel community, traders and investors alike. This is a solid indication of the effectiveness of the contract and the value it brings to the steel trade in the region. The approval of Kaptan, a key player in steel rebar, as a producer further widens the choice of products available for trade,” Sulayem said.

The accreditation of steel producers and their products offers buyers and sellers a definite indication of the quality and specifications traded. Kaptan joins DGCX’s existing list of approved producers so far, which includes Turkey’s Habas, Izmir Demir Celik, Ekinciler, Kroman and Diler; Saudi’s Al Tuwairqi Group (Al Ittefaq) and Sabic Steel (Hadeed); Qatar Steel from Qatar and UAE’s Emirates Steel Industries.

Highlighting the growing interest in the contract, John Short, Executive Director, Steel and Base Metals, Dubai Multi Commodities Centre (DMCC), said: “The DGCX Steel Rebar Futures price is proving to be an accurate indicator for prices of regional rebar as well as correlated steel. This is its key early success. In the last 18 months the steel community has endured a series of vicious price swings, we are in another right now.

“Yet the steel market and its financial providers have not had the tools to manage the risks associated with these volatile prices. It is still very early days for our contract, but is fast gaining the favour of investors and steel traders. Last week’s trade – which witnessed the highest volumes since the launch – reaffirms the increasing investor confidence in the DGCX Steel Rebar Futures contract.”

Short said trade in steel rebar futures was cautious initially as participants assessed its efficacy and got accustomed to screen trading of the world’s first international exchange traded contract. Daily trade picked up from a modest 50 lots per day during the first week of launch, reaching almost 300 lots on December 6.

Steel prices have remained volatile through the year, fuelled by sharp increases in scrap and freight costs.

Steel Rebar Futures is first of a suite of four futures contracts targeted at the steel supply chain, and will focus on the regional steel market place.

The Middle East region is one of the world’s fastest growing steel markets, now consuming over 50 million metric tonnes per annum (mmtpa). With the introduction of futures in steel, the physical steel supply chain will be in a better position to mitigate the negative impacts of price volatility. That price volatility can be in excess of 15-20 per cent, putting tremendous stress on cash flow management and project profitability.

As daily market sentiment continues to play havoc with steel demand and supply fundamentals, price volatility has increased. In the absence of financial tools to help steel industry participants discover a representative, transparent market price and hedge their price risk, firms remain highly vulnerable to the negative impacts of rapid, and all too frequent, unfavourable price movements. 

Besides, trade and industry hedgers will be able to take advantage of the futures even if their specific steel product is something different from DGCX specification rebar, or their business conducted in another regional jurisdiction. In the physical market, prices for different rebar grades, diameters, and even different steel products, like billet, wire rod, and merchant bar, can be quoted at a premium or discount to the Dubai rebar price.

The DGCX commenced trading in November 2005 as the region’s first derivatives and commodities exchange.

A cost-effective tool

The Dubai Gold and Commodities Exchange Steel Rebar Futures Contract was launched with the aim of providing a cost-effective tool to traders and the steel community for hedging price risk.

It also provides valuable data to participants in the physical market, bringing transparency to the forward market for steel.

The exchange has stepped up awareness through roadshows and seminars to detail its benefits and modalities to investors.

Dubai rebar price acts as a benchmark for prices of regional rebar as well as other correlated steels.

This is due to the fact that Dubai is the largest rebar import market in the world’s two most important steel trade flows – eastwards from the Black Sea / Eastern Mediterranean, and westwards from China. It is also emerging as the single largest billet importer, spurred by its active construction market.