x Abu Dhabi, UAEWednesday 26 July 2017

DGCX mulls end of oil, steel deals

Dubai's commodities exchange weighs changes over oil and steel.

The Dubai Gold and Commodities Exchange has had more success developing a local market for futures contracts in gold as well as the Indian rupee. Tamara Abdul Hadi / Reuters
The Dubai Gold and Commodities Exchange has had more success developing a local market for futures contracts in gold as well as the Indian rupee. Tamara Abdul Hadi / Reuters

Dubai's commodities exchange is weighing whether to stop offering oil and steel contracts because of a lack of interest among traders.

The exchange is considering the move although those commodities are trading at or near new highs, its chief executive said yesterday.

"We are reviewing the contracts because they're not doing any volume," said Eric Hasham, the interim chief executive of the Dubai Gold and Commodities Exchange (DGCX).

"They have had volumes in the past but not right now," he said.

There has been no futures trading in Brent crude, fuel oil or steel for at least two years despite prices for almost all commodities climbing sharply in that period.

Daily volumes at the DGCX's main competitor, the Dubai Mercantile Exchange, were at almost 3 million barrels of oil last year, still well below that of most major international exchanges.

Market experts say it is difficult for a new exchange to gain traction against the world's biggest markets such as the New York Mercantile Exchange.

"You don't have to have the futures market where the oil is," said Christopher Bellew, a commodities broker specialising in oil at Bache Commodities in London.

"You need to have a highly liquid, highly open [exchange] and have high volume interest, which means you get very few futures markets in the world," Mr Bellew said.

Highly liquid markets are important for commodity traders because low-volume markets are often prone to sharper price swings.

The higher the volume of a futures contract on a commodity, the more stable and accurate the price.

DGCX has had more success developing a local market for futures contracts in gold as well as the Indian rupee. Those types of contracts account for the majority of the exchange's approximately 11,000 futures contracts a day, representing a value of US$500 million (Dh1.83bn).

Fuel oil, which was first launched on the exchange in 2006, has only had 156 futures contracts traded. These were all within the first few months of launch.

Similarly, although steel clocked healthy volumes in 2007 when first launched, it has not traded at all since 2008 despite strong demand in emerging economies driving prices higher.

Brent crude, which reached two-and-a-half-year highs this year, has not attracted any volumes for futures contracts since July 2008.

Mr Hasham said there were no immediate plans to stop offering the contracts.

"[Not] until you feel there is no hope at all do you look at stopping provisioning of those contracts," Mr Hasham said.

fhalime@thenational.ae