China's DCE starts new simulated delivery for steel scrap futures

To further advance the development and listing of steel scrap futures, China's Dalian Commodity Exchange (DCE) is planning to organize a new round of simulated delivery exercises for the commodity during September-November this year, according to a notice the DCE issued on August 23.

Simulated delivery replicates the steps of the actual delivery process including loading, transportation, inspection, and unloading of the target product, Mysteel Global noted.

It provides training for market players to familiarize themselves with the procedures and requirements of delivery before the futures contract for ferrous scrap is officially launched, according to DCE, while also helping to test the effectiveness of the established delivery plan.

DCE is calling on companies in the ferrous scrap industry to actively participate in the simulated delivery scheme, promising subsidies for those that successfully complete transactions.

The simulated delivery will adopt the free on truck (FOT) transaction mode, with acceptable materials being one of the three types – shredded steel scrap, steel plate scrap, or demolished rebar cuttings – and the minimum delivery quantity is 30 tonnes, the notice clarified.

The DCE also pointed out that steel scrap recycling and processing enterprises that sell their scrap in the delivery must be qualified to issue VAT special invoices, according to the notice.

The exchange has been periodically inviting industry users across the country to participate in simulated trading for steel scrap futures since 2022, Mysteel Global noted. Many companies have successfully completed transactions and established new business relationships over the past two years, sources observed.

"The regularity of such transactions indicates that the launch of steel scrap futures remains on track and is progressing steadily," a market analyst based in Shanghai said.

Through repeated practice, DCE can identify and address potential mismatches in the delivery materials and locations, thereby enhancing its ability to resolve delivery disputes, the exchange explained.

DCE had long ago identified steel scrap as a commodity with potential for a futures listing, following the exchange's launch of iron ore futures in 2013. However, though industry media have frequently reported that a launch was close – market players had expected a scrap futures contract to start trading during H1 last year, as Mysteel Global had reported – the exchange is yet to nominate a commencement date.

Written by Anthea Shi, shihui@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com