* SGX eyes Q1 launch for HRC steel futures, swaps
* Hopes to tap rising steel demand in Southeast Asia
* Steel contracts outside China largely illiquid
By Manolo Serapio Jr and Maytaal Angel
SINGAPORE/LONDON, Dec 17 The Singapore Exchange
(SGX) plans to launch steel futures and swap contracts
early next year, hoping to cash in on rising consumption of the
alloy in Southeast Asia.
SGX is trying to open up the Asian steel derivatives market
by taking on rebar futures in Shanghai, currently the world's
most liquid steel futures <0#SRB:>, but which are not open to
foreign investors unless they are registered locally.
The SGX contracts would add more steel derivatives to a
largely illiquid global suite outside China, and their success
would depend on whether traders from the world's biggest steel
consumer and producer use them or not.
Outside China, one of the most-traded steel contracts is CME
Group's U.S. Midwest hot-rolled coil futures <0#HRC:>.
Launched in 2008, its volume had only reached 55,714
contracts between January and October this year, according to
the CME's website. Volume on the most-active rebar contract
on the Shanghai Futures Exchange topped 300 million
lots last year, based on Reuters data.
"The real test will be if the Chinese guys get involved,"
said a broker in Singapore, adding he expected banks and trading
houses using the CME product to be drawn to the SGX contracts.
The China rebar contract is used as a proxy for hedging all
steel exposure in the mainland, and the SGX effort is aimed at
rivaling that, the broker added.
SGX, which clears around 90 percent of the world's iron ore
swaps, is planning to launch its hot-rolled coil (HRC) steel
futures and swaps for the Southeast Asian region in the first
quarter of next year, pending regulatory approval.
"These products will address the need for price risk
management in response to the rising seaborne steel trades
flowing from North Asia to ASEAN," SGX said in response to a
RISING STEEL USE
Steel imports from China into Southeast Asia hit 11 million
tonnes in 2012, accounting for 24 percent of the region's total
imports, according to the South East Asia Iron and Steel
Institute. Imports from China grew at a compound annual growth
rate of 55 percent from 2009 to 2012, the institute said.
"We've been asking for the product, we're very interested in
it. We think it will have a similar profile to the iron ore
swaps market in terms of how that developed," said a
London-based physical steel trader.
ASEAN, or the Association of Southeast Asian Nations, groups
10 countries across the region, namely Malaysia, Thailand, the
Philippines, Singapore, Indonesia, Myanmar, Vietnam, Brunei,
Laos and Cambodia. The grouping includes some of the fastest
growing economies in Asia.
China, Japan and South Korea are the three major suppliers
of steel products to ASEAN, a region which is not
self-sufficient in supply particularly for semi-finished and
flat steel products, such as hot-rolled coil used for pipes,
ships and cars.
"The market wanted an index price that reflected exports out
of China or within the ASEAN region. Our clients all wanted to
start trading an Asian contract, and we think this one will
reflect that," said an iron ore broker.
SGX handled more than 211 million tonnes worth of iron ore
swaps from January to November, still just a fraction of the
estimated 1.2 billion tonnes of seaborne iron ore that is traded
globally each year.
But the exchange's iron ore swaps are currently facing
competition from China's newly launched Dalian iron ore futures
<0#DCIO:>, where volumes in the first month of trade were nearly
seven times those on SGX.
(Reporting by Maytaal Angel in London and Manolo Serapio Jr. in
Singapore; Editing by Muralikumar Anantharaman)