December 28, 2014 By Ruan Xiaoqin

　　Last Friday, the continuous trading program, or the night trading session, for the products of rebar, hot rolled coils, natural rubber and bitumen, was successfully put online on the Shanghai Futures Exchange (SHFE). Among the four products newly put online, the trading volume of the rebar accounted for 86.88% of the total.

    The growth rate of consumption was lower than that of production in 2014.

    At present, China records severe overcapacity and oversupply of iron and steel, and at the lowest level across the world, the prices of iron and steel products have declined for three consecutive years and have not bottomed out yet. In 2014 China’s crude steel output is expected to reach 818 million tons, an increase of 1.67% from a year earlier; the output is equivalent to 737 million tons of crude steel in apparent consumption, down by 2.25% year-on-year. According to the statistics of relevant departments, China’s crude steel capacity has reached nearly 1.2 billion tons. It will still be a long-term and arduous task to tackle the huge overcapacity.

    China’s iron and steel industry features low concentration and excessive price competition. In 2013, the concentration of China's iron and steel industry declined instead of increasing, with the output of the top ten iron and steel groups in production of crude steel accounting for 39.4% of the total nationwide, down by 6.5 percentage points from the last year. In addition, the iron and steel enterprises post too high asset liability rates, the financial costs take a large share in the period charges, and the enterprises report heavy debt burdens. Meanwhile, the market pattern of fair competition and survival of the fittest has not been formed completely.

    The functions of the steel futures market have initially been brought into play.

    Since the rebar futures were listed in 2009, the market has seen smooth operation, brisk trading, orderly delivery and controllable risks. Practice has proved that the influence of the steel futures has been increasingly improved in the iron and steel markets at home and abroad. The rebar futures prices, which are highly correlated with the steel price index of the China Iron and Steel Association (CISA) and China’s year-on-year PPI growth, have become the reference basis for the spot pricing in the steel trade across China. The steel futures have also turned into an important instrument for the upstream and downstream steel enterprises in daily operation and management. A large number of enterprises in production, consumption and distribution of iron and steel have effectively locked up the earnings in advance and transferred the price risks by prudently using the steel futures in managing the price risks.

    In this March, the SHFE introduced the hot rolled coils futures, providing the iron and steel producers and traders mainly dealing with sheet materials with an instrument for management of price risks and further expanding the service of the futures market for the iron and steel industry.

    The continuous trading has improved the international level of China’s iron and steel industry.

    An important choice in tackling the overcapacity and restructuring in China’s iron and steel industry is to improve the international level, which should be realized in resources, market, capital and personnel instead of the single field of “selling steel”.

    The introduction of the continuous trading program for the futures of rebar and hot rolled coils will improve the functions of price discovery and risk management provided for the upstream and downstream iron and steel enterprises all over the world and facilitate the pricing and hedging operations of the iron and steel producers and consumers at home and abroad, on the one hand. On the other hand, it will further enhance the international influence and power of China’s steel prices. As China’s iron and steel industry has strong international competitiveness, the launch of the continuous trading program for the steel futures will timely transmit the price information in China to the international markets, enhance the influence and authority of Shanghai’s futures prices of rebar and hot rolled coils in the European sessions, and help present a more transparent and open Chinese steel price system in international steel trade.