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Daily Futures Update 12/02/2020

CME & LME EAF conversion curves diverge on cloudy finished products outlook

Nearby strength continued to characterize the LME EAF segment on Wednesday, when the spot market for both instruments rose further and paper market traders bet this rally will be sustained. But CME US HRC futures remained well offered, particularly at the front end, with the result that the two tradeable mini-mill margin forward curves are showing contrasting characteristics. Finished products demand remains the deciding factor.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

Paper buyers kept the LME Scrap futures curve in Contango on Wednesday, when news of more physical cargo bookings at higher levels circulated in the market. And LME Rebar futures rose as well, with a late stage jump in the spot market index indicating that Turkish exporters are finding increased acceptance of higher prices.

US HRC FUTURES

After Tuesday’s sell-off, US HRC futures found some stability on Wednesday with Q2-20 values trading within a fairly tight range through the day. Longer-dated periods remained in a pronounced Contango from this period, providing plenty of opportunity for service centres to lock up future inventory hedges at attractive levels, regardless of the spot market scenario.

FOB CHINA HRC FUTURES

Another sideways day for LME FOB China HRC futures, with Chinese onshore steel futures markets maintaining yesterday’s gains but failing to extend another leg higher. LME paper traders are clearly hedging their bets on the sustainability of these increases.

US SCRAP FUTURES

CME Busheling futures were largely rangebound on Wednesday, recovering from the fairly active trading session Tuesday on the back of the latest monthly settlement. Offers held steady at the tail end of the curve, pushing these periods into Backwardation.

MINI-MILL SPREADS

The LME forward curve for mini-mill conversion margins moved higher on Wednesday after a $10/mt jump in the spot market index for rebar held out new hope that Turkish EAFs will be able to maintain the differential between raw materials and finished products at spot market levels. Still, we’ve seen these moves before over the past few weeks, only for the threatened rally to be disappointed. So we’d advise caution here.

The Contango in the CME EAF conversion margin extended further on Wednesday with grater long-dated Busheling selling interest countering sustained bids for US HRC futures. There is plenty of potential for time spread trading here.

GLOSSARY

This newsletter references various technical words, phrases acronyms and codes. The following Glossary provides further explanation – please don’t hesitate to reach out and suggest additions.

Calendar Months:

Instruments:

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