SHFE preparing for first HRC futures contract delivery

The Shanghai Futures Exchange will see first delivery of its hot rolled coil futures contract on July 15, Steel First has learned.

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A total of 300 tonnes of material arrived at a warehouse in the city on June 5, with the warrant for delivery received on Monday June 16.

“The successful registration of the first warrant for HRC futures means that we have finished the first step of the process for delivery of the futures contract,” an official from the SHFE gold and steel department told Steel First.

The seller was said to be a risk management branch of a futures company. However, the official declined to name the buyer.

The inaugural delivery of the HRC contract in mid-July is a pivotal step since its launch on the exchange in late March.

The event signals “the mature stage for the product and ensures its further development in the future”, the official said.

The material awaiting delivery was produced by northeast China’s Tonghua Iron & Steel and is of width 1,500mm and thickness 5.75mm, a standard specification for the futures contract.

Quality checks are usually the main concern with shipments, the official noted. “But this time, there should be no problem as the material is the prevailing market product at standard specification, and the quality of HRC is more consistent than other steel products such as rebar.”

Small gain
However, market observers suggest that the contract delivery will make little profit for the seller amid the lacklustre futures and spot market, and that the transaction is more likely a test.

The monthly average price for eastern Chinese HRC is at 3,383 yuan ($549) per tonne so far in June, little changed from an average of 3,368 yuan ($546) per tonne in May, 3,362 yuan ($545) per tonne in April and 3,349 yuan ($543) per tonne in March.

“The delivery may just be a bid to complete the futures contract cycle. But it might also help to familiarise participants with the delivery process and uncover any possible risks, which could lay a good foundation for future trading,” a source with a Tianjin-based futures company said.

A Shanghai-based trading source said that the impending delivery is unlikely to have much impact on the market, as most players are likely to remain on the sidelines, awaiting stronger cues than the settling of a single contract. “Actually, even the SHFE rebar futures contract – which is the most popular steel futures in the world – hasn’t seen active delivery so far,” he said.

Delivery volume of SHFE rebar totalled 1.24 million tonnes by the end of May. The futures contract has traded more than 20 billion tonnes since its debut in March 2009, according to SHFE.