China may allow steel futures to protect firms against fluctuating prices

Yahoo! News

Chinese steel futures, banned a decade ago, may soon stage a come-back as officials seek to protect companies from dramatic price fluctuations in the crucial commodity, state media said.

Steel futures can help “protect China’s pricing rights” on international markets, said Xiao Hui, a researcher at Shanghai Futures Exchange.

Steel futures were first introduced in 1994, but frantic, uncontrollable speculation caused them to be banned again within months.

Now, China is again warming to the risk-hedging instrument and has introduced oil, cotton and corn futures within the past year.

China’s boom, reflected in economic growth of 9.5 percent last year, has led to a rapid increase in the demand of steel, with a palpable impact on global markets.

From 2000 to 2003, Chinese steel demand grew by an average 23 percent a year, and it now consumes nearly a third of the world’s supply of the commodity.

Steel demand is unlikely to decelerate anytime soon, given the ambitious plans of several key industries in China.

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