SGX eyes launch of China-linked rebar derivative in early 2021

Singapore — Singapore Exchange, or SGX, a hub for metals derivatives trading, plans to launch a new China rebar derivative referencing Shanghai rebar prices, the bourse said Dec. 18.

SGX said it "is set to be the only international exchange to launch a steel futures contract based on domestic price references in China and the contract is targeted for launch in the first quarter of calendar year 2021, subject to due regulatory approvals."

"We are unable to release the contract specifications at this moment. It will be made available closer to the launch when we have obtained the full regulatory approval. We will keep you informed," a SGX official told S&P Global Platts.

The proposed steel futures contract will reference a Shanghai dollar-denominated rebar index published by Mysteel Global. Shanghai Ganglian E-Commerce Holdings, the parent company of Mysteel Global, has a 50:50 joint venture with SGX to develop indices for iron ore, steel and other ferrous metals.

Platts competes with Mysteel in providing information to the metals market.

"This will serve as an efficient risk transfer tool for domestic and international participants looking to hedge their steel price risk," William Chin, head of commodities of SGX, said.

Although the rebar contract has not been launched yet, a Shanghai-based trader working for a European company said it is unlikely to use the proposed contract and it would not affect its trading activities.

The Singapore iron ore swap is used in the market, while for steel swaps in SGX, just a few use it and it has a small trading volume, so it would not affect the market much, an eastern China mill source said.

A Singapore-based rebar fabricator said it will take a "wait and see attitude. The trading volume plays a part, and traders may not able to liquidate due to lack of volume." He also added that if the trading volume is low, it is difficult. "Matching of seller and buyer is important to traders."

Rebar is widely used in China's property sector, which accounts for over 35% of total domestic steel consumption, and is likely to slow in 2021 as the central government tightens financing for developers.

China produced about 23.27 million mt of rebar in November, bringing overall output over January-November to 242.67 million mt, up 4.9%, National Bureau of Statistics data showed.