FUTURES DAILY: HOT-ROLLED COIL FUTURES TO BE LISTED THIS FRIDAY

Updated on Mar 18,2014

2014-03-18

By Li Lei

The Shanghai Futures Exchange (SHFE) released the notice yesterday that hot-rolled coil futures would be listed for trading on March 21 (Friday). Standard contract of hot-rolled coil futures, and the amendment to detailed rules would be released as well.

According to the notice, the contracts to be listed on the listing day of hot-rolled coil futures are HC1407, HC1408, HC1409, HC1410, HC1411, HC1412, HC1501, HC1502, and HC1503; the trading margin is temporarily set as 6% of the contract value; the trading limit is temporarily set as 4%; the trading limit on the listing day is temporarily set as twice of the trading limit; the trading commission is temporarily set as 0.008% of trading volume; and no trading commission will be charged for closing position on the listing day. Listing benchmark price of each contract will be further announced on March 20.

It is worth mentioning that hot-rolled coil futures does not require increase of trading margin along with change of position-holding volume. However, most futures products in China have the stipulation that “when the position-holding volume of a contract reaches a certain amount, the relevant trading margin will be gradually increased accordingly”.

“This is to further reduce the capital cost of industry customers and investors”, an official of the SHFE told that hot-rolled coil is a major variety of steel products with relatively great market capacity. Judging from the 5-year’s experience in the operation of steel rebar futures, steel futures products will maintain relatively high position-holding amounts for a long time and, at the same time, operate steadily with limited market risks. As a result, the abovementioned stipulation has been cancelled in designing the business rules for hot-rolled coil futures.

Besides, the trading margin and trading limit during the earlier stage of the listing of hot-rolled coil futures are both higher than 4% and 3% respectively as stipulated in the standard contract. With regard to this, the official explained that the stipulations in the standard contract are the lowest implementation limits under the current rules and systems, and the SHFE would make proper up-regulation in case of great price fluctuations in the market. The practice of slightly higher trading margin and trading limit than those in the standard contract is mainly to achieve a higher standard and a steady start. “After hot-rolled coil futures has operated steadily for a period, the SHFE will gradually lower the trading margin and trading limit, so as to reduce the capital cost of all market participants.” said the official.

As hot-rolled coil belongs to steels, like steel rebar and wire rod, the same delivery method of combining maturity delivery and exchange for physicals has been adopted for hot-rolled coil futures. “This is for the convenience of industry customers to conduct physical delivery.” said the official. Serving the industry has been considered while designing delivery warehouses for hot-rolled coil.

It is learnt that the consumption volume of hot-rolled coil in East China, North China, and South China takes up about 70% of the total in China, and all enjoy the geographical and transportation advantages (near coastal areas or along rivers). As the transportation cost of hot-rolled coil futures takes up a high proportion and the waterway transportation is most economical, the SHFE has set delivery warehouses in East China, North China, and South China. “As the market has gradually operated steadily, factory delivery for steels will be carried out”, said the official.