With the soon-to-be-launched steel billets futures platform in July, the industry can avail of a more structured and healthy price discovery mechanism as well as a national level benchmark price as a ready reference for participants, enabling them to mitigate price risks, the Bombay Stock Exchange (BSE), has informed SteelMint.
Steel prices can be very volatile. So investors looking to hedge on short-term bottlenecks in supply might see steel as an attractive investment.
The BSE is also in the process of studying and exploring the feasibility of ‘options’ products in billets. Based on demand from the steel ecosystem, feedback from physical market participants, and subsequent approval from the regulator, the options products will be launched.
Speaking exclusively to SteelMint, Sameer Patil, Chief Business Officer, BSE Ltd, said, “The billets contract is specifically created to help steel industry executives improve their understanding of the futures concept, and keep up to date with the latest developments in launching a price risk management tool.”
As the price of steel is a major component of the total cost in many infrastructure projects, physical market participants find it difficult to manage the volatility in steel prices in the absence of an appropriate hedging platform, he added.
The Steel Users Federation of India (Sufi), in association with BSE, will be launching a Steel Billets Futures on the BSE platform in the first week of Jul’21.
Why billets?
The INR 111-lakh crore National Infrastructure Pipeline (NIP) and the recently announced INR 20 lakh crore Aatmanirbhar package gives special stress on the infrastructure sector, which augurs well for the steel sector, observed Patil.
That apart, INR 6,322 crore for production-linked incentive scheme (PLI) for specialty steel aims at greater value addition. Focus on specialty steel brings in greater self- reliance in the steel sector. “In view of this, a steel futures contract at this point of time has tremendous utility for producers as well as consumers to manage their price risks,” said Patil.
Steel billets are the second stage product during making of steel bars. They are additionally known for flexibility and malleability, particularly when presented to differing temperatures during forming, shaping and moulding. This offers BSE a chance for a standardised and acceptable product which is widely in use in the steel ecosystem.
“The proposed BSE steel billets futures contract will offer market participants an additional avenue (currently there is one exchange that offers steel commodity contracts) and offer all stakeholders effective risk hedging instruments using the latest technology and risk management framework,” Patil said.
Raipur-based delivery centre
The underlying prices will be of Raipur, where the delivery centre is based. The trading and delivery units are 10 tonnes, The tick size is INR 10.00, which gives traders enough movement for bid and offer prices.
~Madhumita Mookerji
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