China: Shanghai Futures Exchange introduces options trading for carbon steel HRCs, stainless steel CRCs

• • New contracts enable market participants to hedge without locking in prices

• • HRC options to represent 10 t per contract, stainless steel options cover 5 t

The Shanghai Futures Exchange (SHFE) in China is introducing options for carbon steel hot-rolled coils (HRCs) and 304 stainless steel cold-rolled coils (CRCs). This adds a new tool to the existing futures market, enabling investors to selectively hedge against the risk of rising or falling prices.

On 24 July 2026, the Shanghai Futures Exchange announced the “Hot-Rolled Coil Futures Option Contract” and the “Stainless Steel Futures Option Contract”. Both contracts have undergone deliberation by the exchange’s board of directors and received approval from the China Securities Regulatory Commission.

The HRC options announced this time are based on standard carbon steel HRC futures. The stainless steel options are based on 304 stainless steel CRC futures.

Although the contract specifications came into effect on the date of the announcement, the actual listing and trading commencement dates, the first trading contract month, the reference price, and commission rates are to be announced separately.

Options expand existing futures market:

Carbon steel HRC and stainless steel CRC futures are already being traded on the Shanghai Futures Exchange. This measure does not involve adding new steel products to the futures market but rather introducing options trading alongside existing futures contracts.

A futures contract is an agreement to trade at a predetermined price at a specified future date. Manufacturers can hedge against the risk of falling prices by selling futures, while buyers can hedge against rising prices by purchasing futures.

As futures fix the price, profits or losses arise in accordance with the contract even if the market moves contrary to expectations. If a futures contract is sold to hedge against a fall in prices but actual prices subsequently rise, part of the profit from the spot sale may be offset by the loss on the futures trade.

An option is a financial instrument that grants the “right” to buy or sell a futures contract at a predetermined price in return for a premium. If market conditions move unfavourably, you can exercise this right; if they move favourably, you can choose not to exercise it.

Put simply, while a futures contract locks in a future price in advance, an option is more akin to insurance against sharp price rises or falls. When purchasing an option, one must pay a premium.

Flexible hedging for producers, buyers:

Steel manufacturers or distributors concerned about a future fall in product prices may purchase put options.

If actual prices fall significantly, they can exercise the right to sell futures at a predetermined price, thereby minimising losses. Conversely, if prices rise, they can forgo exercising the right and profit from the increase in the spot price. However, the initial option premium paid is not refunded.

Demand-side companies concerned about rising product prices can utilise call options. If prices surge, they can exercise the right to buy futures at a predetermined price; if prices fall, they can forgo this right and take advantage of the lower market price.

With the introduction of options, Chinese steel producers, distributors and demand-side companies can now choose between futures, which completely fix prices, and options, which only hedge against risks in one direction, depending on the situation.

The trading unit for stainless steel options is one futures contract, equivalent to 5 tonnes (t) of product. Carbon steel hot-rolled coil options are traded in units of 10 t, corresponding to one futures contract.

Both options consist of call options, which hedge against price rises, and put options, which hedge against price falls. American-style options, which allow the right to be exercised before expiry, are applied.

The China Securities Regulatory Commission expects that the introduction of hot-rolled coil and stainless steel options will diversify the price risk management tools available to companies in the steel industry. Ahead of the listing, the Shanghai Futures Exchange has also begun recruiting market makers for the stainless steel and hot-rolled coil options.

Note: This article is published in accordance with a content exchange agreement between SteelDaily and BigMint.