India is a
key market for Singapore Exchange (SGX Group), which is working on expanding
its client base among the stakeholders of the iron ore and steel sector that is
set to experience a strong demand growth given the huge potential of
infrastructure projects led by the Indian government's initiatives, it said on
Friday.
''India
is a key market for us and it is important because of the potential
infrastructure projects,'' said Will Chin, Head of Commodities at SGX Group,
which runs one of the most active iron-ore contracts in the global futures
market.
''To
us, it is an important client base, we want to work with the industry
stakeholders, especially in the risk management of iron ore trade,'' he said.
''As
the second largest producer of crude steel with 118 million tons produced in
2021, India's need to participate and hedge in the seaborne market will
continue to increase alongside its growth in iron ore consumption.
''Today,
Indian participants are well represented in the SGX iron ore market from a wide
spectrum of the industry, ranging from physical participants to proprietary
financial traders,'' Chin said.
In
2021, volumes from Indian participants in the SGX iron ore contract accounted
for close to 21 million (2.1 crore) tonnes. ''We expect this number to grow in
the coming years,'' Chin told PTI.
Given
the huge infrastructure demand across the globe, such as greenfield projects
while others are undergoing redevelopments, global steel demand is going to
surge in the coming years.
This
will drive iron ore demand, already facing disruption in supply through
geopolitical issues, including the Russia-Ukraine conflict, cancellation of
iron ore exploitation by Guinea and India's decision to impose 30 percent
export duty on grade above 58 percent FE ore.
Indian
steel consumption is expected to be more than 200 million (20 crore) tonnes by
FY 2031, according to trading sources.
''For
India, the super cycle has just begun and will remain for the next five
years,'' said a source at a major mineral trading house.
India
is aiming to reach a crude steel production capacity of 300 million (30 crore)
tonnes by 2030-2031, the Ministry of Steel said in its draft policy report.
In
2021, China produced nearly 1.34 billion tonnes of steel.
According
to the China Metallurgical Industry Planning and Research Institute, the
country's steel demand was estimated at 954 million tonnes in 2021 and is expected
to be around 947 million tonnes this year.
Traders
believe the SGX TSI (The Steel Index) index price will rebound above $150 per
tonne in the coming weeks though there has been a price correction to $130 this
week from $145 a week ago.
This
decline in prices was largely due to softening of global markets, but there has
not been any change in fundamentals, including the outlook on prospects in
China.
''Long
positions are expected to be steady with June iron ore index expected at $150,
though there is no crystal ball gazing with a fast moving geopolitical
environment,'' said a trader.
Though
there has been some decline in Chinese demand, mostly a short-term correction
in the housing sector, Chin views project implementations in the world's two
largest markets positively, and a challenging trade environment for risk
management of resources, including iron ore.
There
was a 70 million (7 crore) tonne of iron ore displacement in the market place
due to the Russia-Ukraine conflict, some redirected to European markets, and on
the demand side, a large volume of steel is going to be required for
infrastructure projects in India and China.
The
Indian government is pursuing a trillion-dollar programme for implementing
projects while the Chinese are still building their tier 3, 2 and 1 cities,
though on the short-term, they are managing some slowdown in the housing
sector.
Given
the high potential of steel-based projects, Chin is bullish on both the steel
and iron ore trade.
He
compared the scope for increasing paper trade volume of iron ore to that of
crude oil and gold, which are traded 20 to 25 times in paper than that of the
physical volume.
SGX
TSI Iron Ore CFR China (62 percent FE Fines) Index Futures trades 2 billion
tons a year at one-and-a-half times of every ton iron ore traded in the
physical market.
''Countries
are embarking on refreshing infrastructure and we think the prices will
continue to be volatile and on the upswing,'' said Chin, pointing out that high
prices and volumes mean more challenges in managing risks.
He
said these challenges and many others will be addressed at the Singapore
International Ferrous Week (SIFW), which is being held next week, May 17-20, in
Singapore, a first of the post-pandemic international industry events.
Formerly
known as the Singapore Iron Ore Week, SIFW returns with a focus on sustainable
steel and will feature a line-up of forums, workshops and social events. The
hybrid event will feature in-person sessions, alongside livestream and video-on
demand options with interactive and virtual platforms.
Chin
added, ''We are once again delighted to be partnering Enterprise SG and our
long-standing partners to bring the ferrous community together to examine how
big trends such as decarbonisation and the metaverse will play out in the
commodities space, and discuss the demand-and-supply outlook as well as key risks
that industry players should be paying attention to.