UAE construction sector to benefit from Dubai Steel Futures market

Steel producers, traders, contractors and end users would be able to better manage their price risk leading to improved price discovery for steel in the region, he said.

Dr. Rutledge was speaking at the MEED Middle East Steel conference, being held in Dubai from September 17th - 18th, 2006. His presentation discussed the significance of Steel futures to the regional steel trade and construction industry. DMCC has developed a Steel futures contract to be launched for trade on the Dubai Gold and Commodities Exchange (DGCX) in early 2007.

"The current construction boom in the UAE necessitates the crucial need for developers to have a regular supply of steel at standardized prices. The volatility of spot steel prices can create cost over runs, thereby affecting the viability of a construction project," said Dr. Rutledge. "The launch of steel rebar futures will assist building contractors in reducing cost overruns as it will help them to manage the price risk of steel bars," he added.

"DMCC's proposed steel futures contract will enable better price discovery for steel as trading would be on standardised specifications of steel rebars. Trading via the exchange as opposed to bilateral hedge instruments also ensures low transaction costs," he said.
The contract unit for the Dubai Domestic Steel Contract is for 10 MT (metric tonnes) of steel rebar, produced by an approved producer, accompanied by MTC (Mill Test Certificate) and complying with BS4449/W460, the specifications for physical, chemical and mechanical quality requirements for steel. The minimum price fluctuation has been set for $0.10/ MT with deliveries to be made by Warehouse receipts at approved warehouses in Dubai.

Dr. Rutledge explained that futures contracts would enable all stakeholders including steel producers, traders, stockists and contractors to lock in prices 6 -12 months in advance. In turn, this would facilitate them to smooth and increase the predictability of their cash flows and gain improved access to finance.

Futures prices originate from continuous electronic auction process involving numerous industry players and investors in a transparent manner, which confers credibility to such prices and assures integrity. Also, the futures contracts and their prices will assist the trade to price their forward contracts based on futures prices published (on a real time basis) by the DGCX.