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Dubai steel futures contract to debut June 27

Dubai, May 27, 2007

The Dubai Gold and Commodities Exchange (DGCX) is set to win the race among commodity exchanges for an internationally tradable steel futures contract with a June 27 launch, a DGCX executive said on Sunday.

The $500 billion steel market lacks a transparent global benchmark for setting prices or hedging risk. The DGCX has repeatedly delayed plans to launch.

"The contract will launch on June 27," John Short, DGCX director of steel and base metals, said in a presentation to investors and the media.

The DGCX is banking on demand from the construction industry in the world's biggest oil exporting region where more that $1 trillion worth of infrastructure projects are in the pipeline.

Futures contracts would allow steelmakers and their customers to reduce risk by locking in prices.

Openly traded futures would also allow financial market speculators to bet on whether steel prices rise or fall, just as they do in base metals, energy, currencies and stock markets.

"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," Short said in a DGCX statement.

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 three others were for stainless steel, flat products and freight, Short said. They were not slated to start trading for at least 18-24 months, he added.

The rebar contract will be accessible to international investors, unlike steel contracts in India and China, which are only for domestic market participants, the DGCX said.

"Many international players need a futures contract... and there is a huge interest in the Dubai steel futures," said Greg Smith, executive director of trading house Global Commodities.

"They want something that is deliverable and they want the steel that can go to storage facilities." The contract will be based on regional rebar trade. It will be priced in dollars per tonne. It will allow for physical delivery at DGCX-approved delivery points in Dubai, which can be used as optional warehouses, Short added.

Each contract will be for 10 tonnes of grade W460 rebar of 12 metres (39 ft).

In 2006, the Gulf's consumption of rebar reached 12 million tonnes, 5.8 percent of global rebar consumption, the DGCX said.
The region's demand for rebar was expected to grow at around 9 percent a year from 2005 to 2010, three times the rate of global demand growth, the DGCX added.

The London Metal Exchange (LME), through which most of the world's base metals are traded, has said there was a very good chance it would be trading a steel futures contract in early 2008.

The New York Mercantile Exchange (Nymex) said in April it hoped to launch steel contracts within six months, while the Shanghai Futures Exchange is also looking at contracts for rebar and steel wire.

So far, steel makers have been cool to the idea of futures contracts, with few of the major producers expressing an interest in using them.

"The steel market in the Middle East still lacks transparency, and having a futures contract may create price discovery, but I would not jump in immediately," said a Saudi-based steel producer.

"But if the specifications and the pricing system of the contract are right, then some big steel players would start using it, and if this happens I will follow suit," he added.

One of the potential problems for the development of a steel futures contract was how to prevent deterioration of the metal in storage said Ian Christmas, secretary-general of the International Iron and Steel Institute.

But the DGCX's Short said the metal would be used quickly and not sitting in storage due to high demand in the region.

The DGCX is seeking to become a majo

Tags: steel futures | DGCX | steel and metals |

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