April 30, 2008 / 8:58 AM / 12 years ago

FACTBOX-Steel futures contracts: Who's doing what

April 30 (Reuters) - The London Metal Exchange’s steel futures contracts started open outcry trading on the floor of the Exchange on Monday, aiming to set a benchmark price for the $800 billion steel industry.

The LME’s billet contracts follow the Dubai Gold and Commodities Exchange’s (DGCX) rebar futures, which began trading in October last year.

Despite strong opposition from some major steelmakers around the world, commodities exchanges have been racing to launch new futures contracts.

Below are details of existing contracts, exchanges’ latest plans for steel futures, and an estimated trading timetable.

DUBAI GOLD AND COMMODITIES EXCHANGE (DGCX)

Dubai’s international rebar futures contract started trading in October 2007. After a slow start, the volumes began to exceed 500 lots per day within the first 6-8 weeks, but the contract could not maintain this pace and has been struggling to attract investors since late December. The Dubai steel contract is for reinforcing bar (rebar), used in construction. Each contract is for 10 tonnes of grade W460 rebar of 12 metres and allows for both cash settlement and physical delivery, the latter at DGCX-approved delivery points in Dubai, which can be used as warehouses for finiancing under similar terms as per LME warrants.

The DGCX listed four delivery months — initially with February 2008 and is due to launch June 2008. Extra delivery months (out 15 months) and 13 weekly contracts replacing the front three months depend on greater market liquidity.

The steel contract is the first of four contract suites targeted at the steel supply chain that the DGCX plans to issue. The three others are for stainless steel, flat products and raw materials. But their launch will largely be dependent on the long product suite, which commenced with dubai rebar, succeeding.

LONDON METAL EXCHANGE (LME)

The London Metal Exchange, through which most of the world’s industrial metals are traded, brought its two regional steel contracts to its open outcry trading floor.

The contracts, which cover steel billet for delivery in the Mediterranean and Far East, have been trading electronically and in the telephone market since February 25.

The first delivery date will be July 28, 2008. LME stocks of steel started to be reported on April 29.

Contracts out to 15 months will be available and the lot size is 65 tonnes. The initial delivery location for the Mediterranean contract is Turkey and and Dubai, and for the Far East contract South Korea and Malaysia.

NEW YORK MERCANTILE EXCHANGE (NYMEX)

The world’s largest physical commodity exchange, NYMEX, announced last July that it has signed a deal with World Steel Dynamics (WDS) to launch a steel futures contract based on WSD’s steel benchmark index.

At the time of the announcement, the Exchange said it aimed to launch the contracts later in 2007, however, the debut has been delayed repeatedly.

Earlier this year, the CME Group Inc’s CME.N launched a proposal to buy the NYMEX, which to some industry sources, has made the plans for steel contract even more unclear.

The expected contract was announced to be USA hot-rolled band steel futures and to be cleared on the NYMEX ClearPort system.

SHANGHAI FUTURES EXCHANGE

The Shanghai Futures Exchange has been trying to launch rebar and steel wire futures for well over a year, but the exchange still lacks support from China’s steel industry.

The Exchange has not yet given a date for launching its contracts but the industry thinks it might be shortly after the LME’s contracts.

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