Chinese steel market in the post-futures period

•This study is one of the first studies on the steel futures markets.•We investigate the price discovery process in the Chinese steel market.•The spot market maintains its prominence in the price discovery process.•The spot market׳s volatility decreased in the post-futures period.•Following the launch of the steel futures, steel has become a more “financial” product.

We expand the research on commodity futures markets into a newly developed market: steel futures. We examine the most liquid steel futures market in the world, the Shanghai Futures Exchange, which counts for nearly all of the global trading activity. Our findings suggest that following the launch of the steel futures, steel has become a more “financial” product. We first explore the relationship between the spot and futures prices. Futures market finds its place in the price discovery process where the spot market continues to maintain its prominence. We also find evidence indicating that volatility in the spot market has decreased during the post-futures period. Our findings suggest that regulators should consider launching the steel futures so as to enhance the completeness of the market while also taking great care to preserve the link between the physical and the financial market.