Given the recent volatility in steel prices globally, the introduction of steel futures, as a hedging mechanism, could not have happened at a better time. This also makes India the first country to introduce steel futures.In the global commodities market, steel is the largest commodity after oil. It has also been one of the most volatile commodities during the 1990s. It is also a significant metal market lacking price transparency and a mechanism to hedge against price volatility. Besides, steel products are perceived as being inherently complex and sold into equally complex regional markets. To protect the steel manufacturers and consumers in these volatile environments, it is essential to introduce steel futures as a hedging mechanism.

Against this background, the players in the recent past thought that consideration should be given to a traded forward contract for steel. They are of the view that forward contracts have the potential to radically improve the industry and the way its products are traded, marketed and sold. In the recent past, the volatility of steel prices was more conspicuous. For instance, in the last 30 years, fluctuations in prices are as much as 100 to 150% in the world markets. India produces only 3.3% of world steel production of around 30 million tons and imports specialized steel. Hence, the steel market in India is more vulnerable to volatility. At this juncture, India's Multi Commodity Exchange (MCX) and the National Commodity and Derivatives Exchange (NCDX) have taken initiative in the global commodities market. The two exchanges are among the first in the world to introduce trading in steel futures.

In fact, for the global steel industry, a major revolution is on the cards as it contemplates the launch of a futures contract on the London Metal Exchange (LME) and a number of similar non-exchange-based entities. MCX assumes that the steel futures contracts will facilitate best price discovery, hedging opportunity and benefits through standardized contracts. Moreover, uniformity and high quality norms stipulated in the contracts will also ensure immense benefits to the industry. As the Indian steel industry is growing at a rapid pace and the recent volatility witnessed in the prices in the spot market, industry sources appreciate the launch of MCX steel futures contracts. The biggest beneficiaries of this upswing are integrated steel players like Tisco, Steel Authority of India Ltd. (SAIL) and Jindal Steel and Power Ltd.

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