| Steel futures to be launched |
| Last Updated(Beijing Time):2006-06-07 09:24 |
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By Liu Ming
"Steel products are ranked No. 1 among all articles we have prepared." That is the answer given by Lao Guangxiong, a deputy general manager of the Shanghai Futures Exchange(SHFE) when being asked by reporters that when steel futures would be launched into the market.
"We think that steel futures will play a positive role in expediting the development of the steel industry." This is expressed by Li Yaoqiang, President of China National Association of Metal Material Trade on the Third Shanghai Forum on Derivatives Market sponsored by SHFE.
To ameliorate the circulating pattern of steel materials
Li Yaoqiang expressed that China's trade of steel materials was in a key period of transformation. The whole sector of steel material trade had made delightful progresses during 20 years. Two decades before, steel material trade in China was simply limited to the government's planned allocation; but now, many private enterprises have become key players in this field. Nevertheless, there still existed some faults in steel material trades; and such faults were mainly represented in the following aspects:
In the first place, the circulating pattern is irrational. Under the present shuttle-like circulating pattern, the relatively direct and steady supplies from steel plants to users are not so much while about 60 percent of the total supplies are temporary purchases and sales.
In the second place, there is a large quantity of management entities and costs for management are comparatively high. Due to their equivalent scale, the behaviors and operational modes of most enterprises engaged in the circulation of steel materials repeat again and again, thus having the overall costs maintained at a high level.
In the third place, end users of steel materials depend too much on enterprises engaged in the circulation of steel materials; thus, end users lack the say in pricing and mid and small-sized users are not sufficiently protected. Basically, steel plants lead in the pricing of steel materials. And the last problem is that there are too much risks in the industrial system and there lacks a risk-hedging mechanism.
"Now, the characteristics of economic development has posed new requirements to the sector of steel material circulation; and such requirements can be summed up as two aspects: how to respond to large fluctuations and how to cut down costs." noted Li Yaoqiang when analyzing the status quo in the sector of steel material circulation,"in such a case, how enterprises engaged in the circulation of steel materials can enter into the futures market to evade risks has become an imminent issue."
Six functions of steel futures
"The functions of futures to find the price, evade risks in the market, and process data concentratively will play a deserved role in the transformation of steel material circulation. Steel futures are significant for steel materials circulation, but such a process is gradual." Li Yaoqiang expected very much out of steel material futures but his expectations are fairly rational.
He said that to have steel material futures launched will be expected to function in six aspects: Firstly, it can help to realize an even pattern by reinforce participating entities. The scale of corporate producers of steel materials is much larger than that of enterprises engaged in the circulation of steel materials; meanwhile, the comparatively dispersed distribution of corporate processors in China has made small and mid-sized users rather weak, which has pushed corporate producers in a very strong position. As economic laws and regulations are still far from perfection in our market, the balance between various forces in the market is very important. The trade of futures can make it convenient for financial investors to enter into the market due to such standardized trades. For the moment, the strength of funds and financial investors has been embodied sufficiently in the market of non-ferrous metals as the strength of respective parties is relatively balanced.
Secondly, risks in the system can be lowered. Due to the risk-evading mechanism, risks in the whole system can be lowered.
Thirdly, improved transparency can conduce to policy-making and macro control. Presently, all markets of steel materials in Shanghai, Beijing, and Tianjin must report data routinely to relevant departments conducting macro control. But such a kind of data collection is lagging behind in terms of time while data thus collected are just limitedly representative. The reason lies in that the current markets of steel materials in China are dispersed with the prices varying from place to place. If there were a futures market, it would be possible to have the timeliness and accuracy of data improved greatly.
Fourthly, costs for circulation can be lowered with the operational efficiency raised and the combination in the sector of circulation secured.
Fifthly, the industrial structure can be optimized, thus conducing to the development of those advantaged enterprises. With the current mechanism, supports for advantaged enterprises appear to be insufficient. On the one hand, various parties are simply doing the same thing and it is hard for enterprises to have others lagged behind; on the other hand, the lack of a risk-evading mechanism by means of futures has made large enterprises undertake large risks. Without a risk-evading mechanism, large enterprises, the stocks of which are great, would be cornered once the price reversed. On the contrary, mid and small-sized enterprises would be hurt rather lightly due to their smaller stocks.
Sixthly, it will be helpful to urging people engaged in the sector of steel material circulation to improve their capabilities. For the moment, people engaged in the sector of non-ferrous metals are possibly better at taking initiatives to analyze factors on all aspects that influence the market in general and take actions. Such a fact is not resulted from the level of people engaged but from different trade modes. |
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