(Yicai) Sept. 10 -- The London Metal Exchange will launch the LME Steel Hot Rolled Coil Shanghai contract on Oct. 27, with the contract settled to the Shanghai Futures Exchange HRC steel price, marking the first time the Chinese exchange has made a metals price available for trading on another exchange.

The new contract will be cash-settled at a price benchmarked on the SHFE HRC Chinese yuan price, converted into US dollars for settlement purposes, the LME and the SHFE jointly announced yesterday. It will "provide an additional access route to a key commodity contract for international firms."

The SHFE signed a deal with the LME at the Lujiazui Forum in Shanghai on June 17, granting it the right to use the SHFE's hot-rolled coil futures settlement price and supporting the launch of a futures contract linked to that benchmark, the Chinese exchange said that day.

"From next month, the LME will be providing the market with a straightforward route to accessing what is widely regarded as the global benchmark for the flat steel sector, offering ease of access for offshore participants of the LME," said Chief Business Officer MiRan Park.

"By licensing the settlement price of SHFE HRC futures to the LME, we aim to provide Chinese and overseas companies engaged in global HRC trade with a more direct and effective risk-management tool, while further strengthening the links between China's steel industry, the Shanghai price, and global markets," noted Zhang Ming, executive vice president of the Chinese exchange.

China is the world's largest producer and consumer of HRC, with output reaching 325 million metric tons last year, accounting for 22 percent of the country's entire steel production and the largest share of any steel product. Its exports topped 21.52 million metric tons, or about 20 percent of its total steel exports.

The SHFE HRC futures contract has grown into the world's largest for flat steel, with an average of about 700,000 lots traded a day and an average daily open interest of 1.9 million lots. It has increasingly served as an important pricing reference for imports of Chinese flat steel products across the Asia-Pacific, the Middle East, North Africa, South America, and other regions.

Editor: Martin Kadiev