Steel futures suspended for multilateral conflicts

It was reported that steel futures would appear on China's futures market in the first half of this year. The steel futures project has went through a several years long R&D and has been approved by China Securities Regulatory Commission (CSRC). Now the project is waiting for the approval of National Development & Reform Commission (NDRC), and then the final approval of the State Council. However, NDRC has currently suspended the project. The reason is; the market is not mature enough, and further research is necessary. Before NDRC's decision, there were three main voices discussing the issue: China Iron & Steel Association (CISA) was against the project, while China Securities Regulatory Commission (CSRC) and Shanghai Futures Exchange (SFE) were in favor. The major conflicts can be summarized as follows: Hedging or speculation, which will be the mainstream in the futures markets? Hedging in futures markets is synonymous to balancing the risks. The recent price decreases showed the risks on the spot market again. Thanks to the future markets, everyone on the steel market would be able to balance or shift their risks; regardless, whether the future of the market is unclear or the trend is going down. However, the counter opinions claim that China's steel industry is in a special adjustment period for the time being and the concentration rate of steel production is still not high enough. In addition, speculating on the market would be possible. As a result, big price fluctuations, which are unbearable by the steel industry, may occur. The price determination function of futures markets In addition to hedging, another main function of the futures market is to determine the price, and improve the market efficiency accordingly. Futures market provides a consensus of major opinions about the future price of the commodities or financial instruments. Currently, there are three price quoting systems on Chinese steel market: ex-factory prices, spot transaction prices and electronic/network quoting prices. And only 20 percent of steel products are directly sold to the end users from the mills. The rest 80 percent are on the steel market and they need an effective platform to find out their real price levels. Among the three pricing systems, electronic/network system's price determination function is similar to the futures market. However, CISA considers that this system is not good for the spot market. The best argument is: the latest overall price drops were just initiated by Shanghai electronic/network system, and then the prices on the spot market also followed the downward trend. Finally, the market prices were distorted. On the other hand, experts from CSRC and SFE both claim that the price fall indicated the necessity of a futures market. According to them, the electronic/network prices are just the reflection of market's expectation and they should not be blamed for the overall price decline. It is apparent that NDRC agreed with CISA. When will the steel futures be approved by NDRC is an unanswered question so far.