John Short

The DGCX steel futures contract to be launched on June 27th will enable the industry to mitigate the negative impact of steel price volatility in the UAE and the region. It also offers regional investors a new instrument for commodity speculation.

Details of the DGCX Steel Rebar Futures Contract were unveiled to investors and the steel community at a seminar organized by DGCX in Dubai. This will be the world's first internationally accessible exchange-traded instrument that provides coverage of physical steel. Globally steel is a 1.2 billion metric tonne physical marketplace.

Steel Rebar Futures is first of a suite of four futures contracts targeted to the steel supply chain, and will focus on the regional steel market place. Mr. Short said: "The Middle East region is one of the world's fastest growing steel markets, now consuming over 50 million tonnes per annum.

'With the introduction of futures in steel, the physical steel supply chain will be in a better position to mitigate the negative impacts of price volatility. That price volatility can be in excess of 15-20 per cent, putting tremendous stress on cash flow management and project profitability."

"More than three million tonnes of the benchmark Rebar product for the contract is traded and consumed each year in the UAE. A further 20 million tonnes per annum of price correlated steels are traded in the Red Sea Arabian Gulf Shore countries, ensuring the DGCX product is of key material value to the regional steel market, not just Dubai."

As daily market sentiment continues to play havoc with steel demand and supply fundamentals, price volatility has increased. In the absence of financial tools to help steel industry participants discover a representative, transparent market price and hedge their price risk, firms remain highly vulnerable to the negative impacts of rapid, and all too frequent price movements.

GCC consumption of rebar during 2006 was a huge 12 million tonnes - 5.8 per cent of global rebar consumption - and GCC demand for rebar is predicted to grow at the rate of around nine per cent per annum during 2005 to 2010 as against global growth of around three per cent for the same period.

'Besides, trade and industry hedgers will be able to take advantage of the futures even if their specific steel product is something different from DGCX specification rebar, or their business conducted in another regional jurisdiction,' said Mr. Short.

'In the physical market, prices for different rebar grades, diameters, and even different steel products, like billet, wire rod, and merchant bar, can be quoted at a premium or discount to the Dubai rebar price.

'Although India and China have exchanges offering steel futures, the prices discovered in them are confined to the respective national markets and only domestic firms are allowed to trade. Whilst the prices discovered on DGCX are also domestic, they are reflective of rebar pricing throughout the RSAGS countries.'