Within a month of launch, DAT in steel futures contract sees sharp increase

Within a month of its launch, daily average turnover (DAT) in steel futures contract has witnessed a sharp increase following the merger of Ahmedabad-based National Multi Commodity Exchange (NMCE) with Reliance ADAG anchored Indian Commodity Exchange (ICEX). 

ICEX launched steel futures nearly a month ago, which received participation from producers and consumers alike. The DAT in steel futures has surpassed the benchmark ~300 million in the first month of the launch against nearly ~360 million of average turnover generated in the stabilised diamond contracts. 

“The steel industry is exposed to tremendous price volatility. The market is already witnessing frequent price revisions by miners and manufacturers. In the last one year, steel spot prices increased by 40 per cent to reach a peak in June 2018 and then came down by 10 per cent from its peak and are currently again on an upward trend. The steel long futures contract of ICEX is helping buyers and sellers to hedge against such price volatility and providing a transparent and demand-supply driven price discovery platform,” said Sanjit Prasad, managing director and chief executive officer, ICEX. ICEX started steel futures nearly a month ago while diamond futures were launched on this platform about a year ago. 

The exchange has witnessed a consistent increase in the open interest, which stands at more than 2,500 tonnes at present. This short period reflects the desire of the industry to hedge and derive economic utility of the contracts, said Prasad. 

Meanwhile, being a compulsory delivery contract, hedgers have started depositing steel longs in ICEX accredited warehouses. Ahead of the first expiry of contract in November, hedgers have so far deposited 500 tonnes of steel longs in the ICEX registered warehouses. 

“Steel contracts on ICEX have a long way to go. But, users have started minimising price volatility risk by hedging their position in ICEX,” said Ajay Kedia, managing director, Kedia Commodity. 

Movement in steel prices has compelled the buyers and sellers of steel to find avenues to protect their margins. The recently launched steel long futures contracts by ICEX are being used by the buyers and sellers to hedge against impending price volatility. While induction furnace players are the sellers and rolling mills are the buyers who are coming to the exchange for hedging their position. 

Fundamentally, demand from the construction and infrastructure sector as activity picks up post monsoon season as well as higher festive season demand from automobile industry and durable goods industry.