The Hindu Business Line : Steel producers suggest ban on forward trading

New Delhi, April 8 Domestic steelmakers have suggested to the Government to ban forward trading in steel items in order to check rising prices and to curb inflation.

The price in the futures market sets a benchmark leading to artificial panic in the spot market, steel manufacturers have told the Government while noting that items of mass consumption such as TMT bars, angles, joists and roofing sheets, which directly affect the consumers, constitute bulk of the volumes in futures market.

At a meeting between the secondary steel producers and the Ministry of Steel here on Tuesday, the producers pointed out that it was not possible to reduce prices because there “is no such scope in the face of rising input costs.”

This was the second meeting between the secondary steel producers and the Ministry this month to explore ways of controlling prices.

However, the producers pointed out that higher prices that are being quoted in the futures trading of steel items at the Multi Commodity Exchange (MCX) were creating artificial volatility in spot market prices. MCX started trading in steel futures in March 2004.

In case of ingots alone, the price volatility has increased by Rs 1,000-2,000 on account of futures market prices, they pointed out.

Representatives of cold rollers, sponge iron manufacturers, pig iron makers and re-rollers also met the Government on Tuesday. In a meeting held last week, the secondary producers had given the assurance that they would import an equivalent volume of steel that they export to augment domestic availability

If futures’ prices are higher by Rs 1,000 on a particular day, the wholesalers at the mandis will immediately start charging Rs 500 more and also start hoarding of material expecting better future realisations, the manufacturers pointed out.

Additionally, since both the unit size as well as the tick size (the booking amount per contracted tonne) for steel products in the futures market are very small, volumes had been on the rise off late. The unit size for flat products is 25 tonnes with a tick size of Rs 10 per tonne while for long products and sponge iron it is 15 tonnes and Rs 5 per tonne.

Globally also, in the short period commodity exchanges always witness price volatility leading to sharp ups and downs.