* Shanghai to start steel futures trading
* U.S. manufacturers cool to idea
* Steel stocks rise on positive economic signs
(Recasts, adds U.S. steel stocks closing higher)
By Steve James
NEW YORK, March 26 A new steel futures market
in the heart of the world's largest producer and consumer of
the metal is a major event for China, but has failed to
convince most U.S. manufacturers of the value of publicly
trading derivatives based on their products.
On Friday, China's Shanghai Futures Exchange will join four
other global marts offering steel derivatives to set a
benchmark price for the 1.3-billion tonne-per-year industry.
The exchange will start formal trade of two construction
steel products -- reinforcing steel bar and wire rod. But in
the United States, the news of the new exchange brought
"Many of our members do not support it," said Nancy
Gravett, spokeswoman for the American Iron and Steel Institute
(AISI), a major steel producers' lobbying group.
"They see it as benefiting traders and not adding value to
the producer/customer relationship," she told Reuters in
response to a question about the opening in Shanghai.
Already, steel futures are traded on the London Metal
Exchange, the Dubai Gold and Commodities Exchange, the
Chicago Mercantile Exchange and India's National Commodity &
But since the Chicago exchange started trading in
hot-rolled coil steel futures last October, the idea has been
slow to spread to other markets in the United States.
Dan DiMicco, chief executive of Nucor Inc (NUE.N) said at
an AISI conference late last year: "We do not see steel futures
as a good thing. We're not big fans of an idea that puts
anybody between ourselves and our customers and tries to make
money off both of us, and does it in a way that isn't
necessarily sound and ethical all the time."
Keith Busse, CEO of Steel Dynamics (STLD.O) agreed at the
same conference: "I think it has to add value, and I don't know
that it has done so.
"Steel is not quite as generic a commodity as some think. I
don't think it's going to be supported physically -- and if it
isn't, I doubt that it will be a success," Busse said.
ArcelorMittal USA (ISPA.AS)(MT.N) said in a statement on
Thursday: "We do not believe that financial institutions
speculating on steel prices will bring any benefit to the
long-term sustainability of our industry."
TWO SIDES OF THE COIN
But many analysts and steel industry observers support the
idea of futures trading.
"It makes sense, especially in view of the volatility of
steel prices in the past year, where we have seen some products
double in price and others halve," said analyst Charles
Bradford, of Bradford Research.
"Customers were left holding the bag with high-cost
inventories," he said. "If there was trading, they could have
hedged. If you are a company using steel, you need to know what
the costs are, (which) steel companies won't give."
He said that manufacturers tend to regard pricing as
proprietary information. "But the fallacy of their argument is
that customers know what they are charging.
"We have seen the downside (of prices) without trading. But
if there had been trading they would have blamed trading. Their
argument is moot, they really should trade," Bradford said.
Michael Locker, of Locker Associates, a steel industry
consultant, said futures trading is inevitable. "There is going
to be a market in steel trading, the question is whether it
will be supported by steel manufacturers.
"There will be a resistance level," he said. "If trading
grows to 5-10 percent of all purchases, then it will have an
impact on pricing.
"Theoretically, it should dampen volatility, but there has
been volatility in other commodities where there was trading,"
Shares in U.S. manufacturers rose on Thursday on economic
signs seen as positive for the steel industry. The U.S.
government announced a rise in durable goods orders and new
home sales, while the finance director of mining giant Rio
Tinto (RIO.L)(RIO.AX) said the crash in metals prices may have
nearly run its course.
On the New York Stock Exchange, U.S. Steel's (X.N) stock
closed up 5.4 percent at $24.74, Nucor's (NUE.N) rose 5.1
percent to $41.09 and AK Steel (AKS.N) was 1.1 percent higher
at $8.09. On the Nasdaq, Steel Dynamics (STLD.O) shares closed
7.3 percent higher at $9.74.
(Reporting by Steve James; Additional reporting by Alfred Cang
in Shanghai; Editing by Patrick Fitzgibbons, Gary Hill)