Saturday, 30 August 2008 |
11:03 UAE time
Preparation has been underway for months and, at the end of October, the steel rebar futures contract will be launched on the Dubai Gold & Commodities Exchange (DGCX).
The trading platform will be the first in the world to offer an internationally accessible facility for steel, for which the global production market currently stands at 1.2 billion metric tonnes.
Among the benefits for contractors investing in the exchange will be better protection against rebar price fluctuations - which can alter drastically over a 30-day period - as well as better foresight when preparing project budgets.
The exchange is designed to provide traders with tools to manage price volatility: for example, if a customer buys steel on the futures market at a certain price, it acts as an insurance on the physical steel as it will retain the same price until the contract is finished, providing contractors with the opportunity to allocate a definitive amount of money for steel rebar while working on a project.
"The aim is to offer a product which would allow contractors to have price certainty over the period of the contract in which they need the steel," says John Short, executive director, Steel & Base Metals, DGCX.
"So if they take out a futures hedge at the beginning of the contract, they can have a fixed-price for steel for the duration. What contractors currently have is exposure to a market where volatile prices can move against them during the period of a contract, leading to substantial cost overruns. We're not actually changing any prices - we're just offering tools to manage price risk."
The process also helps providers of steel, because they can also sell physical steel, and then insure themselves with a futures contract by buying steel at an agreed price on the futures market.
Contractors and suppliers can trade on the exchange either by signing up as a member or by using an existing broker member and paying them commission.
Trade membership has been set at $10,000 (AED 36,717), while transaction fees have been wavered for the first 12 months of the contract.
"The advantage of using brokers is that you don't have the outlay of a trade membership fee. Secondly, they have a great deal more experience," added Short.
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