SINGAPORE -(Dow Jones)- iSteelAsia.com, Asia's first internet-based steel trading exchange, will increase transparency and boost efficiency in the market, Andrew Yao, a founder of the exchange and chairman of Hong Kong -based Van Shung Chong Holdings Ltd. (H.VSC), told Dow Jones Newswires.

Despite industry reluctance to adapt to online trading , the new method is seen as a necessity for the industry and it will enjoy enormous popularity in the future because of cost and time savings it will bring to both steel mills and consumers, he said.

That popularity may not extend to steel traders, who are likely to come under greater pressure as a result, said Yao.

Founded in November and launched Dec. 6, Hong Kong -based iSteelAsia.com was established by a number of industry participants, including some key regional steel enterprises. It's a non-subscription service.

It is important to establish such an online exchange where "people can interact," because there is "so much inefficiency" and "so many layers" of exchange created by traders in the steel market, Yao said.

"Steel is usually sold three or four times before reaching end-users. In places like China, it's five or six times. In Japan, it's eight or nine times.... A lot of times, traders aren't really creating value," he said. "

With its transparency and efficiency, online trading will provide tremendous savings for industry participants, he said.

Online trading will gradually get rid of the artificial barriers between producers and end-users, Yao said.

Acknowledging the exchange may create challenges and threats for traders, he said they can also make good use of the system because it's open to all industry participants.

Targets Share Of Asian Trade

The exchange has a turnover target of $5 billion for the year 2002, Yao said, adding the goal is "quite achievable" because Asia accounts for 45% of global steel consumption, worth more than $300 billion in annual turnover.

Although trading will be global, the exchange will focus on Asia because "there are so many customers in Asia," he said, adding the Asian industry is "growing so fast and there is so much (trading) inefficiency."

Since its establishment, iSteelAsia.com has registered more than 300 corporate and individual users, Yao said, including Beijing Shougang Co., China's second largest steel mill, and Amsteel Corp. Bhd. (P.AST), the top producer in Malaysia.

Since its establishment, iSteelAsia.com has registered more than 300 corporate and individual users, Yao said, including Beijing Shougang Co., China's second largest steel mill, and Amsteel Corp. Bhd. (P.AST), the top producer in Malaysia. The membership is expected to increase to 1,000 by the end of 2000, he said.

Target customers include trading companies of all sizes, big end-users and big producers, he said. Among them, large steel mills appear to be the most reluctant to switch to on-line trading, he said, adding he thinks they will eventually join the system.

Although there are "slow adopters," going online will eventually become an "extremely popular" trading method, he said.

While buyers and sellers can exchange bids and offers through the exchange, actual transactions will be off-line for the time being, Yao said, but eventually the on-line service will be able to provide "virtual LC (letter of credit) transactions," he said.

The exchange is in talks with a few banks and is very close to "concluding something," he said.

Yao said he expects rival services to appear eventually. "That's why it's important to have the first-move advantage, to build the brand and get people to join," he said

-By Shen Hong; 65-421-4822; hong.shen@dowjones.com