Futures Daily: Boost the Development of Steel Industry by Facilitating the Functioning of Futures Market

Updated on: November 22,2017

Reported by Dong Yifei　　

From relevant responsible heads of SHFE and DCE:

The “Steel Industry Summit Forum & the 8^th Steel Club Meeting”, which was hosted by Shagang Group and Daotong Futures and supported by SHFE, DCE and CMBC, was held in Nanjing on November 18. According to relevant responsible heads from SHFE and DCE, the exchanges will continue to improve their services and facilitate the functioning of futures market to boost the development of steel industry.

According to Ye Chunhe, Deputy General Manager of SHFE, along with the deepening and implementation of Supply-side Structural Reform as well as the transformation and upgrading of steel industry in recent years, the dramatic price fluctuations in the ferrous metal industrial commodities has posed a challenge to the steady operation of relevant brick-and-mortar enterprises, bringing about a much more urgent need for relevant entities to manage the price risk through the futures market. It is the affirmative duty of futures market to serve the industrial structural adjustment and upgrading and assist the enterprises in mitigating market risks. And this Forum just offers a favorable communication platform for the futures market to serve the development of the steel industry.

Also, according to Ye Chunhe, it is the starting and staying points of all work for SHFE to serve the physical economy, prevent and control financial risks and deepen the financial reform. SHFE has gradually evolved into one of the largest commodity futures markets around the world though intensifying the frontline supervision and promoting the institutional innovation. Since 2009, the Exchange has launched a series of futures products step by step, including rebar, wire rod and hot rolled coils, and made certain progress in serving the industry and facilitating the functioning of the market based on years of development. First of all, there is sufficient liquidity in the market. Trading scale has increased year after year since the launch of steel futures, accounting for more than half of the total turnover of SHFE in 2016. Secondly, the Exchange has effectively facilitated the functioning of hedging. Ever since the launch of steel futures, we have witnessed a steady operating market with orderly delivery. As indicated by a huge amount of practices, it is feasible for steel enterprises to transfer the price fluctuation risk through hedging, so as to effectively fulfill the goals of steady operation as well as cost and profit lock-in. Thirdly, steel futures prices are highly correlated with relevant markets. In particular, highly relative to the CRU index and China’s PPI, the prices of rebar futures have become a major reference to the spot pricing because they fully reflect the supply-demand relationships both at home and abroad. Finally, steel futures have promoted the optimization of industrial structure. We have applied a brand registration system to the execution of steel futures delivery, which facilitates the steel industry to implement the industrial policies, support the well-running enterprises and inhibit the poorly-running ones, and quicken the structure adjustment by upgrading the brand awareness and creditworthiness of production enterprises and encouraging the whole sector to attach greater importance to the quality.

In the opinion of Ye Chunhe, thanks to the huge capacity scale of the industry, powerful global competitiveness and high marketization degree, China’s steel futures market has attracted great attention in the recent two years. However, we shall be well aware of a series of problems, such as the discontinuous operation of our contracts and the inefficient utilization of futures by our enterprises, although SHFE’s rebar futures had become one of the world’s most active derivatives in 2016. The Exchange has been actively conducting energetical exploration to upgrade the steel enterprises’ abilities to manage the price risks with futures instruments by optimizing the system and rules, and vigorously promoting the talents training, investor education and market cultivation. In the meantime, Mr. Ye also hoped that all market subjects will make joint efforts in building a leading global ferrous metal futures market to facilitate the steady and healthy growth of China’s steel industry.

According to Xu Qiang, Deputy General Manager of DCE, the Exchange has always adhered to its fundamental tenet of serving the physical economy since its foundation. With a down-to-earth and innovative attitude, it has successively listed a total of 16 commodities futures and 1 commodity option to generally form up a product system of 6 categories covering foodstuff, oils & oilseeds, woods, livestock, energy and chemicals and minerals, and become the world’s largest futures market for grease, plastics, coal, iron ore and agricultural products. Among them, coke, coking coal and iron core, which are steel industrial chain-related products listed in recent years, have currently ranked among the actively traded products of the Exchange.

Xu Qiang said that under the context of continuous transformation and upgrading of national economy, the steel industry still confronts with relative high pressure resulting from the overcapacity cutting, destocking, deleveraging, cost-down and risk prevention. As the market prices discoverer and risk management instruments promoter, DCE will strengthen the support to the steel industry by the improvement of services in multiple ways. The report to the 19th CPC National Congress clearly spells out that “the financial sector needs to strengthen its ability to serve the physical economy”. According to the important deployment of the 19^th CPC National Congress, DCE will persevere in the main keynote of making progress in stability, continuously propel the opening-up of the exchange products as well as various reforms and innovations, and strengthen and deepen the communication and cooperation with the sector so as to make greater contribution to the innovative development of the steel industry.