The Dubai Gold and Commodities Exchange (DGCX) – which recently unveiled details of its first proposed steel futures contract – has delayed its launch until after summer to ensure a strong start.
"The overwhelming requests to delay the launch to enable all players to actively take part have forced us to revise our start date," David Rutledge, a director at DGCX says. "Although this may disappoint some in the industry... the beginning days for any contract are important so as to ensure the best start with the maximum number of participants and volume of trade."
DGCX, the first international commodities derivatives exchange in the Middle East, had said it would launch the internationally tradeable steel futures contract on June 27.
The DGCX Steel Rebar Futures Contract will be the world's first internationally accessible exchange-traded instrument that provides coverage of physical steel. Globally steel is a 1.2 billion-tonne physical marketplace.
"The need for price risk management tools in the steel industry here has been felt for long. The contract, whose specifications will be tailored to the needs of the industry, will address that concern adequately. DGCX is not just another exchange; but an institution committed to playing its pioneering role in the domestic and regional market to the advantage of all the market players," says Colin Griffith, chairman, DGCX, while commenting on the contract.
"The fact that DGCX futures prices are instantaneously disseminated will serve as a ready reference price to the steel trading community. Counterparty risk is mitigated as transactions executed on DGCX are cleared and guaranteed by Dubai Commodities Clearing Corporation (DCCC)," he adds.
The $500-billion steel market lacks a transparent global benchmark for setting prices or hedging risk. Futures contracts would allow steelmakers and their customers to reduce risk by locking in prices.
The Dubai steel contract will be for reinforcing bar (rebar), used in construction. It is the first of four contracts targeted to the steel supply chain that the DGCX plans to issue. The rebar contract will be accessible to international investors, unlike steel contracts in India and China, which are only for domestic market participants.
John Short, executive director, Steel & Base Metals, DGCX, explains: "The Middle East is one of the world's fastest growing steel markets, consuming over 50 million tonnes per year (tpy). With the introduction of futures in steel, the physical steel supply chain would be in a better position to mitigate the negative impacts of price volatility, which can be in excess of 15 to 20 per cent and put tremendous stress on cash flow management and project profitability."
"More than 3 million tpy of the benchmark product for the contract, BS4449 (1997) W460B Type 2 Rebar, is traded and consumed each year in the UAE. A further 20 million tpy of price-correlated steels are traded in the Red Sea Arabian Gulf Shore countries," he continues.
GCC consumption of rebar during 2006 was 12 million tonnes – 5.8 per cent of global consumption – and the demand is predicted to grow nine per cent per annum during 2005 to 2010 as against global growth of around 3 per cent for the same period, he adds.
