Considering the enormous price fluctuations in the steel sector and the absence of a mechanism for hedging and arbitrage in the region for steel, the imminent launch of DGCX’s Steel Rebar Futures Contract will bring diverse benefits to steel producers, contractors, traders and investors, said John Short, Executive Director, Steel and Base Metals, Dubai Multi Commodities Centre (DMCC).
Speaking at the Steel Market Middle East conference held by Steel Business Briefing, which is widely known as the key source of steel industry news and information, Short stated that steel is not a traditional commodity but a series of products with regional markets, many of which do, in fact, exhibit commodity market behaviour.
The conference was inaugurated by Ahmed Bin Sulayem, Executive Chairman, Dubai Multi Commodities Centre (DMCC) and Director of its joint venture initiative, Dubai Gold & Commodities Exchange (DGCX). Mr. Bin Sulayem drew attention to the significant role played by steel in Dubai’s spectacular development. “The Middle East, today, is one of the world’s fastest-growing steel markets and in this connection, steel has become of great significance to DMCC. In particular, driven by the fast pace of infrastructure growth that you see all around you, consumption of steel in Dubai, the UAE and the region has also increased.”
Short pointed out that in the East Africa, Red Sea & Arabian Gulf Shore (EARSAGS) Rebar market is very well correlated to Dubai Rebar price. Additional products such as rod, merchant bar and billet are also well correlated. The physical market value of all these steel products is US$ 15 Billion. The rate of price volatility is in the range of 15 – 20%,” he
continued, arguing that in the light of these facts the steel contract to be launched assumes especial significance.
Adding that Dubai Rebar’s price is a highly significant price right along the Black Sea to Asia and China to Mediterranean trade flows, he said Dubai is the (central) point where these two trade flows clash. “Dubai is the single largest rebar import market and the GCC is becoming the largest billet import market. In the context, DGCX Rebar Futures are applicable not just to Dubai rebar, but to trade and industry hedgers of any price correlated steels along these trade-flows,” he argued.
Describing the DGCX steel futures as a low cost and versatile investment product for steel community participants, commodity portfolio investors and lay investors, Short gave a series of hedging examples, specific to different business models such as those of producers based on Scrap, Virgin Iron and Billet, international traders, local stockists, contractors and of fabricators. “It is perfectly legal to use the insider knowledge of those involved in the steel supply chain for investing purposes. Unlike the region’s equity markets, you can go long as well as short on the futures contracts, meaning that you can buy now and sell later or sell now to buy back later, depending on your view on future price situations,” he explained.
The speech by Short included numerous examples of how different investors could use the steel futures to benefit from steel’s price developments, a facility they have not had before. Apart from the obvious benefits of hedging, arbitrage and price convergence, Short also cited cash flow management, asset capitalisation and cost of finance as additional advantages of trading in steel futures.
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