Steel pundits divided on the future of futures

Steel industry pundits appeared divided today on the issue of futures trade in the metal and said steel futures still had to cross many hurdles to be a viable business.

Speaking on the sidelines of the Metals 2004 global meet organised here by the Bengal Chamber of Commerce & Industry (BCCI), J K Tandon, director of Essar Steel, took a positive view and said he hoped futures trade would take off sooner rather than later.

"There are problems, like acute lack of storage capacity and warehouses", said Tandon. Tandon predicted futures trading would begin with basic products like wire rods and rebars, and then, as it matured and ironed out problems, would move towards billets and slabs, and finally to standardised finished products.

Rod Beddows, director of the London-based firm Hatch, said despite clear indicators that futures trade would benefit both producers and users through more efficient distribution and logistics and better price discovery, the industry appeared to be reluctant to take the plunge.

Presenting the opposing viewpoint, Vinod Garg, executive director of Ispat Industries, said, "The futures model has been tried and has failed to deliver expected benefits to producers."

Futures would take off only if the market offered facilities like a 2-3 year liquidity window, pre-financing facilities and 10-year buy-back for downturns as in non-ferrous metals, said P Bhattacharya, joint managing director of Usha Martin Ltd.

It was impossible to create a futures market in products like hot rolled or cold rolled coils or TMT bars as the specifications of customers were too precise for the items to be traded as commodities, he added.

Actual production of aluminium was only a fraction of the volumes traded, but steel production was very large, at more than 800 million tonnes worldwide, Bhattacharya reiterated. This would would enormous demands on the resources required to trade in volumes in multiples of actual production.