China’s Dalian Commodity Exchange (DCE) plans to launch steel scrap futures. DCE has recently initiated talks with Chinese steel mills and associations regarding delivery standards. It is anticipated that DCE would launch steel scrap futures by the end of 2020.
DCE needs to provide market participants detailed guidelines on acceptable quality or brands for delivery, warehouse licensing and service. Chinese ferrous scrap industry lacks industrial standards for the scrap quality and delivery which needs to fixed before the launch of the futures product
Chinese domestic steel scrap consumers and traders are optimistic of this development as a futures exchange for steel scrap would be a very effective tool for prices discovery. It could be used as a hedging tool for both the steelmakers and traders to manage their risks.
China’s steel scrap consumption soared 15pc in 2019 to 215.93mn mt as compared to 187.77mn mt in 2018. The country continues to be the world’s largest steel scrap user. BIR reported that the scrap usage ration also increased in 2019. The proportion of scrap used in the country’s steel production climbed to 21.7pc in 2019. Steel scrap consumption is growing at a pace of 20mn mt per annum with the government emphasis on eco-friendly steel production and the availability of scrap.
Containerised steel scrap future
In Taiwan, ferrous scrap buyers are in favour of launching steel scrap future for containerised trade. This will help them lower their risks. In container trading, many buyers default on deals in order to find a lower price elsewhere. A similar scenario can occur when sellers believe they can obtain a better price in a rising market.
A derivatives contract-based on a containerized trade could help buyers and sellers create more liquidity than the exiting Turkey bulk contracts. A ferrous scrap futures contract would bring more transparency to the Taiwan market, according to traders in Taiwan.
Emerging Asian markets like Taiwan, India, Pakistan and Bangladesh are expected to become trendsetters for Asian ferrous scrap market in the future.