India’s steel futures to ride on economic boom

India’s steel futures to ride on economic boom

Singapore, 3 October India’s steel futures trading is likely to grow up to 40% by next year as domestic producers expand capacity to satisfy the growing appetite for steel at home and overseas, a senior industry offical said on Tuesday(2 October).

But base metals trading is likely to grow at a relatively slower rate because of the absence of many big producers in the country, said V.K. Goyal, chairman of the Association of National Exchanges Members of India.

With the Indian economy growing at about 9% a year and construction and demand for vehicles booming, more consumers, such as builders and auto makers, are keen to hedge against rising costs, he said.

“We are seeing good growth in interest for trading in steel futures in India," Goyal told Reuters in an interview on the sidelines of a derivatives conference.

“A builder, who has five ongoing projects and promises to hand over apartments three years later to its buyer at today’s price, cannot afford not to hedge, given the recent price volatility," he added.

India launched its first steel futures contract in 2004. Currently, the National Commodity and Derivatives Exchange trades in mild steel ingot contracts, with some 5,000 tonnes traded daily on an average, Goyal said.

“With companies like Arcelor Mittal and POSCO getting aggressive in firming up plans for new plants in India, it is surely sending a signal to the market about the future of the steel industry in the country," Goyal said. “We are going to see more demand, more exports and more turnover."

Arcelor Mittal, the world’s biggest steelmaker, is hoping to start building a 12 million tonne steel plant in the eastern Indian state of Orissa next year.

And South Korean steelmaker POSCO Co Ltd is also expected to also start construction of its 12 million tonne project in eastern India by early next year.

“China factor"

In addition to surging domestic demand for steel and iron ore, India is witnessing a sharp growth in exports of iron ore to China. This is making Indian traders and exporters wary of more price volatility in the future, Goyal said.

“There is always this China factor that goes on in people’s minds. Domestic users are therefore more keen to hedge their requirements now, compared with two years ago," Goyal said. “With many Indian exporters keen to get into long-term contracts with China, prices could catch fire."

China, the world’s largest steel producer, imported a record 9.84 million tonnes of iron ore from India in March. In the year to March 2007, India exported about 90 million tonnes of iron ore. More than half of the exports went to China.

Goyal added that trading volumes on Indian exchanges in base metals would grow, but at a much slower rate compared with steel.

“We are expecting volumes to grow by about 10 to 15 percent from current levels by next year," Goyal said. “It’s taking time for metals to catch up as we have very few big producers."

But with the Indian rupee appreciating more than 10 percent so far this year against the U.S. dollar, Goyal said imports of copper, aluminium and zinc could rise, leading to a higher rate of growth in metal trading volumes, compared with previous years.