China’s DCE finalizing steel scrap futures delivery terms

“DCE is discussing with domestic steel mills about the delivery standards, as China still lacks a unified steel scrap classifications in accordance with quality,” a market source from Dalian, Northeast China’s Liaoning province commented.

The lacking of well-recognized industrial standard for the scrap quality has added difficulty to the launch of the contract, according to him.

China requests all the industrial commodities futures to have physical deliveries when a month contract matures, so it is a must to work out detailed guidelines regarding acceptable quality or brands for delivery, warehouse licensing and service charges before the launch, Mysteel Global understands.

Other than the delivery terms, DCE has shared a steel scrap contract draft with industrial sources for closed-door discussions, but all the specifications are yet to be finalized and ready to be shared publicly, a DCE official commented.

“That is not the final version, so there may be some adjustments, and either the simulation trading date or the launching date have yet been nailed,” confirmed the market source that had seen draft.

DCE has been firm on the intention to launch the steel scrap futures within 2020 on different occasions, Mysteel Global notes.

“We are looking forward to the steel scrap futures, as it will be serving as a fair and just price discovery tool for the domestic market, a nice change from now when Chinese steel mills are taking the lead in deciding on the prices and delivery terms,” a scrap trader in East China’s Jiangsu province said.

A Shanghai market source applauded the move too, commenting,“it is good for the domestic scrap market, as futures will be a hedging tool for both the steelmakers and traders to manage their pricing risks,” he said.

China is the world’s largest steel scrap producer and consumer with its scrap consumption estimated at 215 million tonnes in 2019, and the consumption volume is expected to grow at a pace of 20 million t/y with the country’s growing emphasis on eco-friendliness in steel production and the availability of scrap, market sources agree.

Since its founding in 1993, DCE has so far launched 19 futures contracts and three options products comprising soybean meal, corn, and iron ore.

Written by Lindsey Liu, liulingxian@mysteel.com

Edited by Hongmei Li, li.hongmei@mysteel.com