SECURITIES TIMES: HOT-ROLLED COIL FUTURES MOCK TRADED TODAY AND TO BE LISTED LATE MARCH

Updated on Mar 07,2014

2014-03-07

By Shen Ning

It is learnt that the Shanghai Futures Exchange (SHFE) will conduct mock trading for hot-rolled coil futures from March 7, 2014. According to sources, the preparatory work for the listing of hot-rolled coil futures has been completed on the whole, and hot-rolled coil futures is predicted to be officially listed in late March.

According to the SHFE’s arrangement for the mock trading, the listing benchmark price of hot-rolled coil futures is RMB3,360 per ton; 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 first day of the mock trading is temporarily set as twice of the above trading limit (that is, no more than ±8% of the listing benchmark price); and the trading commission is temporarily set as 0.008% of trading volume.

In accordance with the “Detailed Rules of Hot-rolled Coil Futures’ Mock Trading” released by the SHFE, the trading unit of hot-rolled coil futures standard contract is 10 tons per lot; the minimum price fluctuation is RMB2 per ton; the contract delivery months are the continuous months within 12 months; the daily price limit is within 4% up or down the settlement price of the previous trading day.

The standard products (delivery quality) of hot-rolled coil futures contract are the 5.75mm thick and 1,500mm wide Q235B hot-rolled coil (conforming to GB/T3274-2007 “Hot-rolled Thick Steel Plates and Strips with Carbon Structure and Low-alloy Structure”) or SS400 hot-rolled coil (conforming to JISG3101-2010 “Rolled Steel for General Structure”); the alternative delivery products are Q235B hot-rolled coil (conforming to GB/T3274-2007 “Hot-rolled Thick Steel Plates and Strips with Carbon Structure and Low-alloy Structure”) or SS400 hot-rolled coil (conforming to JISG3101-2010 “Rolled Steel for General Structure”) with the thickness of 9.75mm, 9.5mm, 7.75mm, 7.5mm, 5.80mm, 5.70mm, 5.60mm, 5.50mm, 5.25mm, 4.75mm, 4.50mm, 4.25mm, 3.75mm, and 3.50mm, and the width of 1,500mm. The delivery mode is physical delivery.

Insiders predicted that hot-rolled coil futures is to be officially listed at the soonest in late March. As hot-rolled coil is an important product in the domestic steel market, its listing will exert significant influence on completing existing steel futures products series, better bringing off the functions of price-discovery and hedging, and serving real enterprises in the steel industry chain.

Industry customers, institutional clients, and other investors have extensively participated in trading of steel rebar futures and wire rod futures since their listing in 2009, and thus they have got increasingly mature recognition toward the futures market, which has laid a solid market foundation for the successful operation of the hot-rolled coil futures to be listed soon.

Judging from the proportion of each steel product, the product that conforms to the SHFE’s hot-rolled coil futures contracts is mainly hot-rolled medium-thick plate, the output of which takes up 17% of the total steel output in 2013. However, if considering the relevance of hot-rolled coil with other steel plates, the to-be-listed hot-rolled coil futures will have a direct influence on about 42% of the steel output.

Fu Yang, a futures analyst of Guotai Jun’an Securities, said that hot-rolled coil has a high relevance with medium plate, coated and galvanized plate, boiler and container plate, and cold-rolled plate, as these plates have low value-added, their costs are mainly affected by raw material prices and labor cost, the their influencing factors from downstream demands are rather unified, and they are mainly related to automobile, ships, infrastructure construction, and machine manufacturing. Judging from the relevance between hot rolling and cold rolling, their correlation index of 0.7 shows their high relevance. The listing of hot-rolled coil futures can cover the whole steel plate market and provide other steel plates with an instrument to avoid price risks and a function of price-discovery.

“Calculated by the current price of RMB3,500 per ton (the average price of all products related to hot rolling, cold rolling, and coating), the spot market scale covered by hot-rolled coil futures is predicted to be around RMB1.58 trillion. As most steel plate manufacturing enterprises are medium-sized and large state-owned steel enterprises, the service objects faced by steel coil futures in the future might also be mainly medium-sized and large state-owned enterprises.” said Fu Yang.

Analyst pointed out that the price fluctuation convergence of steel rebar and hot-rolled coil is also very high, because both of them are products with over capacity and are greatly influenced by the fluctuation of raw material prices. Only different demands of the two products in some stages might lead to spread fluctuation. Overall, the price ratio of hot-rolled coil and steel rebar in Shanghai is around 1.01. In the past 7 years, this ratio has fluctuated between 0.95 and 1.05. After the listing of hot-rolled coil futures, hedging between coil futures and rebar futures might become one of the strategies concerned by the market.