Daily Futures Update 07/02/2020

Scrap futures Contango stretches further while finished products tend to more bearish posture

Scrap futures ended the week on a bullish note, with both LME Scrap and CME busheling climbing further into Contango. But instruments corresponding to finished products were much more of a mixed bag and this had a significant impact on EAF conversion margin forward curves: both are forecasting a decline in mini-mill profitability over the next few months.

Exchange Prices at 1630 GMT

Disclaimer:  This report is issued by Price Consult Ltd, which is not a regulated entity. The report was prepared and distributed for information purposes only. The report may contain information and opinions which are the author’s own and may be used as the basis for trading undertaken by the author. The report should not be constructed as a solicitation nor offering advice for the purposes of the purchase or sale of any commodity, security, investment or derivatives. Whilst Price Consult has taken all reasonable steps to ensure this information is correct, Price Consult does not offer any warranty as to the accuracy or completeness of such information.Any person placing reliance on the report to undertake trading does so entirely at their own risk and Price Consult does not accept any liability as a result.


LME EAF futures continued to rise on Friday as it appeared the physical market rebounded, with cargoes reporting trading as much as $10/t higher than just  few days ago. But LME Scrap futures are definitely leading the charge, demonstrating an aggressive Contango, while buy-side interest for LME Rebar futures remained more constrained.


Beyond the front month, US HRC futures are shifting further into Contango as spread traders continued to dump prompt price exposure and roll positions further out. Considering spot indices are still holding at much higher levels, the curve shape seems a little strange bu betrays the continued lack of confidence in the spot market.


With the Coronavirus crisis in China showing few signs of abating, despite some promise earlier in the week, China’s steel markets remained in stasis and the LME FOB China HRC curve was unchanged as we reached the weekend.


CME Busheling futures continued moving higher on Friday and Mar-20 started to trade at levels closer to the balance of the curve. This was distinctly at odds with US HRC futures and is incentivising price scrap accumulation, even if the outlook for finished products is cloudy.


The LME mini-mill conversion margin forward curve gave back all it’s gains on Friday, with Q2-20 periods being offered through their recent lows as fresh spot bookings indicate that the scrap market is recovering. Longer-dated periods continued to trade at higher levels, providing plenty of opportunity for time spread traders.

The CME forward curve for US EAF conversion margins is starting to mimic the HRC futures forward curve, which is pricing in a gradual improvement in steel mill fortunes after nearby declines. If US steelmakers are successful in keeping spot pricing from falling, we would expect to see this curve shift into Backwardation.

Leave a Reply