Steely futures ahead

However, trading in the other contract — steel flat — was introduced for the first time in the world at the Multi Commodity Exchange (MCX) in March 2004, followed by another steel contract at National Commodity and Derivative Exchange (NCDEX) a year later.

Although steel flat too trades at only around Rs 5 crore daily, Sinha says with increased participation of steel traders and construction heads, this would change.

Madan Sabnavis, NCDEX chief economist, says the trend is picking up, as ‘‘the traders realise that trading through hedging will benefit compared to actual delivery.’’

Sushil Sinha, commodities manager at Geojit Securities, agrees.‘‘The Reserve Bank of India (RBI), through its credit policy, has given corporates permission to go for increased hedging, which means the government too supports commodities and futures. Steel volumes will now see a hike with the participation of companies,’’ he says.

According to analysts, steel futures is heavily influenced by raw material cost — mainly iron ore — and the dynamics of the scrap market. ‘‘The price fluctuations in the scrap market, the increasing activity in ship-breaking and raw material costs, are major factors,’’ says Sinha.

With the industry turning the corner this year, steel shares have surged by 50 to 100 per cent on the bourses. ‘‘The attention is evident with massive investment from steel companies as they go for capacity addition,’’ says Geojit’s Sinha.

Globally, the steel story’s foreword always reads ‘China Shining’. China, a robust consumer, is now set to double up as a major producer too. The metal’s sheen, as per estimates, has shifted from West to East with US imports declining.

As China dons the exporter’s role — increase in production capacity flattening the demands — the global dynamics will see a change, say analysts.

Meanwhile, Indian steel too is firming up for changes. Increased infrastructure focus will inflate per capita consumption in India — pegged at 30 kg per annum, say analysts. But China, with per capita consumption at a monstrous 300 kg per annum, will constitute 80 per cent of global growth demand this year with a dominant role in pricing.

Annual steel production in India is pegged at around 37 million tonnes, with 4 million tonnes exported. Consumption would see demand from the automobile and construction sectors — both show a growth rate of 14 per cent.

‘‘The trading in India will see an upturn when the commodity trading shifts from the present global price band of $450-$500. Prices remained at $250-$350 over the last five years,’’ say metal watchers. Commodity trading will be affected when a new price band shift takes place, they say.

FIRMING UP THE CONTRACTS

• Steel futures occurs only in India — at MCX and NCDEX

• Trading in three contracts — steel long, flat and ignots

• India produces around 37 million tonnes annually.

• China, the major steel consumer, dominates pricing

• Volumes still picking up, Rs 5 crore being the minimal trade for a day