FUTURES DAILY: HOT-ROLLED COIL FUTURES RUNS SMOOTHLY IN 1ST MONTH AFTER LISTING

Updated on Apr 21,2014

April 21, 2014

By Li Lei

Hot-rolled coil futures has been listed by the Shanghai Futures Exchange (SHFE) for one month till today, and it run smoothly in the 1st month after listing.

According to statistics from the SHFE, during the 20 trading days from its listing day to April 18, hot-rolled coil futures have attained a total turnover of 909,000 contracts (about 9.09 million tons) and a trading volume of RMB30.6 billion, and the total position-holding amount of all contracts is 72,444 contracts. The average daily turnover is 45,000 contracts, and the average daily trading volume is RMB1.53 billion, showing moderate trading and position-holding scales.

During this month, the price of hot-rolled coil futures was high at the beginning and went down afterwards. Zhu Shiwei, an analyst from Yong’an Futures, believed that influenced by the approaching of domestic steel’s boom season and the releasing of a series of measures on railway infrastructure, shantytowns reconstruction, and supporting micro and small enterprises by the State Council to stabilize the growth, the prices in domestic steel market, including that of hot-rolled coil, rose on the whole and fell afterwards. The general trend of hot-rolled coil futures conforms to the market expectation of the demand release in March and April (good months for the steel market) and the implementation of micro-stimulation policies.

The price of hot-rolled coil futures present a high correlation with those of the domestic spot market and the price-finding function of the futures market has gradually appeared. Judging from the price difference structures between futures and spot goods of dominant contracts, the structure of hot-rolled coil futures is on the whole the same with that of rebar steel futures, a mature steel futures product.

Zhu Shiwei said that with regard to arbitrage among different products, the price tendency of hot-rolled coil (a representative of sheet materials) is closely related to that of rebar steel and, according to statistics, the correlation coefficients of hot-rolled coil futures and spot goods with rebar steel futures and spot goods are 0.96 and 0.94, respectively. Since the listing, as affected by the strong release of building steels in spring, the ratio of rebar steel against hot-rolled coil has kept expanding, which has provided market participants with good arbitrage opportunities. Besides, judging from the upstream and downstream situation, the correlation coefficients of hot-rolled coil with iron ore, coke, and coking coal are 0.86, 0.82, and 0.82 respectively. Such a relevant high correlation between upstream and downstream industry chain has provided abundant hedging opportunities for arbitrage among different products. At present, futures products have covered both the upstream and the downstream of the steel industry, thus forming a complete circle and offering diversified risk management opportunities to customers in the steel industry chain.

“Compared with rebar steel futures, enterprises’ enthusiasm in hot-rolled coil futures is expected to have a longer warm-up period.” Lin Xiaochun, Deputy Head of Guotai Jun’an Futures Industry Service Institute, said that the suppliers of hot-rolled coil are medium-sized and large state-owned steel enterprises. Though they’ve paid high attention to hot-rolled coil futures, most have not been fully prepared for it and thus have not entered into the market. Along with the continuous promotion of futures business for real enterprises and the steady progress in market building, the market functions of hot-rolled coil futures will be brought off step by step, and its function of assisting steel industry clients in risk management is to outburst.

An of the SHFE said that it would trace the market operation of hot-rolled coil futures and formulate working plans on risk prevention, market training, and investor education in line with the features of the market operation, so as to promote the maturity, the function display of hot-rolled coil futures, and make it better serve the development of national economy.