Daily Futures Update 13/02/2020

Steel Futures front months are still well bid

Front month Steel Futures continued to gain ground on Thursday, with higher index prints for ferrous scrap and rebar going some way to support expectations that buyer reluctance to consider ex-China offers on force majeure concerns will support demand for production elsewhere around the world. There were also more buyers showing levels in the US HRC futures market as well. But the front end of this curve remains heavily discounted to spot and indices keep softening. The two tradeable EAF conversion margin were still in disagreement, with the paper market outlook signalling a near term revival for Turkish mini-mills while their compatriots in the USA will have to tighten their belts if the CME outlook is correct.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

LME Scrap futures held firm on Thursday, with spot market transaction prices ticking higher again and supporting the nearby Contango. And another jump in the spot index that settles LME Rebar futures supported another move higher for this instrument as well. Beyond the front end, both curves are once again tending towards Backwardation, perhaps indicating that market conditions are returning to normal.

US HRC FUTURES

There was a broad range to US HRC futures trading on Thursday, with off screen interest fixated on Mar-20 but plenty of buyers. And this supported a move higher for Q2-20 futures, although daly spot market indices for this product are still falling. Considering Mar-20 is just a few months away, it makes sense that buyers are coming in to cover shorts or hedge anticipated physical purchases. As spot and this period continue to converge, we expect to see a less extreme curve presentation.

FOB CHINA HRC FUTURES

Onshore markets once again remained firm but quiet on Thursday and LME FOB China HRC futures followed suit. The off screen market has been busy, with plenty of volume trading in a fairly tight range. 

US SCRAP FUTURES

CME Busheling futures moved strongly higher on Thursday, with the forward curve presenting it’s clearest Contango in recent memory. Increased buy-side interest for US HRC futures saw relative value hedgers moving in on the back end of the curve, which is now incentivising inventory holders to lock up more future supply.

MINI-MILL SPREADS

The forward curve for LME EAF conversion margins continued to edge higher on Thursday with some periods surpassing $150/mt, although other periods continued to trade below settlement levels. Firmer spot rebar numbers are doubtless helping sentiment here, although the curve shape still tends to Backwardation.

The front month Backwardation for US EAF conversion margins remained extreme on Thursday, with paper market traders betting that a forecast plunge in finished product pricing will not be matched by a reduction in raw materials prices. But longer-dated periods moved into Contango – perhaps a reflection of reduced capacity utilization figures published over the past few weeks.

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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