Borsa İstanbul Derivatives Market (VIOP) added a new instrument to derivatives products on commodities. Futures contracts on scrap steel started being traded on Borsa İstanbul on April 2, following a bell-ringing ceremony.

Borsa İstanbul Derivatives Market offers the steel industry the opportunity to manage price risks at a time when the commodities markets suffer from fluctuations and the uncertainty in the real sector increases.

Futures contracts on scrap steel started being traded on Borsa İstanbul Derivatives Market (VIOP) on April 2, 2015 with a bell-ringing ceremony held with the participation of Borsa İstanbul Executive Vice Presidents Çetin Ali Dönmez and Mustafa Kemal Yılmaz, The Steel Index Executive Director Steven Randall, and Turkey Steel Producers Association Acting Chairman Uğur Dalbeler.

Çetin Ali Dönmez: “We are ready to receive applications by domestic and foreign institutions intending to become market makers for this contract”

In his speech, Borsa İstanbul Executive Vice President Çetin Ali Dönmez emphasized that Turkey is one of the key actors of the global iron and steel market, saying,

“As futures contracts on scrap steel start being traded, we believe that it will be possible to respond to the sector’s and Turkish economy’s risk management requirements to a great extent, and the sector’s global competitive power will strengthen. Certainly, it will take some time for the contract to reach the desired liquidity level, however, we believe that we will make the contract functional with the contributions of the leading iron and steel companies of Turkey, foreign companies engaged in steel trade, and domestic banks and investment institutions. We are ready to receive applications by domestic and foreign institutions intending to become market makers for this contract. We are already carrying out discussions with the relevant institutions.”

Mustafa Kemal Yılmaz: “With this futures contract, we are taking the first step for a metal market in Turkey”

Borsa İstanbul Executive Vice President Mustafa Kemal Yılmaz indicated that the steel sector is a strategic sector with regard to Turkey’s position in international trade, adding,

“As Borsa İstanbul, we are pleased to offer a platform for all the sector participants to manage their risks arising from their activities regarding all steel products from raw material to final product.  With this futures contract, we are taking the first step for a metal market in Turkey. We will improve this market with derivative products on other metal products, in consideration of the needs of the real sector. As Borsa İstanbul, we will continue to play a leading role to close the gap between the capital markets and the real sector, and to ensure integration”.

The Steel Index Executive Director Steven Randall said, “I am honoured to witness such a momentous event. I have been travelling to İstanbul in the last ten years, and I love this city”. Randall went on to say,

“Borsa İstanbul is making a significant step for the finance sector today. Thanks to this step, Borsa İstanbul and The Steel Index will work together. Currently, Turkey is one of the key countries in determining the price of steel. Scrap steel, which is the raw material of steel, has a global annual trade volume of approximately 600 million tons. Turkey is one of the leading importers with a capacity of 20 million tons annually. This capacity is sufficient to determine the prices globally. Today, the first thing that would come to the mind of an ordinary Englishman about Turkey would be “Turkish delight”, but if you asked an Englishman working in the steel industry, he would say that Turkey is one of the determinants of the global scrap steel price. Turkey has a significant potential for scrap steel futures contracts. We believe that this potential will provide the basis for positive steps for both Borsa İstanbul and The Steel Index for future cooperation”.

Uğur Dalbeler: ”These contracts will create significant opportunities for the steel sector”

Turkey Steel Producers Association Acting Chairman Uğur Dalbeler expressed his pleasure as a person with 30-years’ experience in the sector, and thanked everyone that have a part in the decision to start trading scrap steel futures contracts.

Dalbeler said that steel is the commodity with the highest traded value in the world, however, in contrast to other commodities, there is no derivatives instrument on steel that is traded worldwide. We have felt its lack”.

Dalbeler expressed his hope that this beginning will be a significant step for the steel sector in Turkey, adding, “The Turkish steel sector has made a significant improvement in the last twenty years. Along with China and Korea, Turkey is one of the best performing three countries in the steel sector. In the last two years, however, the growth trend seems to have reversed, and we are expecting a difficult time ahead. In consideration of these, I believe that these futures contracts will create a significant opportunity for the steel sector”.

Turkey is an important scrap steel market

Turkey realizes one fifths of the global scrap steel imports, using predominantly scrap in steel production, and is the most important scrap market of the world. The prices of the scrap steel imported by Turkey are monitored as reference by steel sector participants worldwide. Turkey’s important position in scrap trade compels improving futures contracts on Turkish scrap.

Futures contracts will offer risk management of prices

Futures contracts, created as a result of such needs, are expected to allow steel producers and users to manage their input, intermediate product and final product price risks, and therefore facilitate taking production and consumption decisions. The fact that contracts on scrap steel are new to the capital markets offers portfolio diversification opportunities for investors.

The contracts are denominated in US Dollars

Futures contracts written on The Steel Index’s Turkish imported scrap steel price index are cash settled, with Takasbank acting as counterparty. The contracts are denominated in US Dollars, their size is 10 tons, and the cycle months are the closest 2 months including the current month, and the closest cycle months.

The first trades on the scrap steel futures contracts traded on VIOP Metal Futures Markets were realized by VIOP members Halk Yatırım Menkul Değerler A.Ş. and Ata Yatırım Menkul Kıymetler A.Ş..

Thanks to its wide product range, central counterparty guarantee in managing companies’ risks, and increasing liquidity, Borsa İstanbul Derivatives Market (VIOP) takes determined steps toward becoming the region’s preferred trading platform.

Please visit viop [at] borsaistanbul.com or www.borsaistanbul.com/en/viop for further information on scrap steel futures contracts.