Daily Futures Update 14/02/2020

Steel Futures end the week higher than the last, traders still cautious

Steel futures markets carried most of this week’s gains into the weekend, albeit with a markedly more cautious approach by most to Friday’s trade. The LME EAF segment rally looked to sputter and run out of steam as some paper market traders feared we have seen the last of fresh bookings at higher prices. The focus is now very clearly on finished products as a signal for these markets’ next move. Some early signs are promising, with the LME Rebar index ending the week much higher than the last. But a large portion of the market clearly remains to be convinced.

Exchange Prices at 1630 GMT

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A quiet day for LME Scrap and Rebar futures to end a busy week, during which spot and paper prices have escalated significantly. A flurry of new deep sea cargo bookings made by Turkish mills at progressively higher prices has buoyed confidence in the near term market outlook. Some scepticism remains – although rebar export prices have also risen this week, sellers were still happy to open shorts in Backwardation.


US HRC futures maintained yesterday’s levels on Friday, with plenty of time spread trading while the curve beyong Mar-20 is demonstrating a slight Contango. Considering the present scenario, we would expect to see time spreads dominating interest next week while clearer signals from the spot market remain absent.


LME FOB China HRC futures ended the week slightly higher, even though physical market reports indicate sustained softness for the latest export offers. It looks like paper traders are trying to get into longer-dated long positions in anticipation of a resurgence in demand once the Coronavirus has died down. Regrettably, for now, this crisis shows no sign of slowing down.


CME Busheling futures continued to push further into Contango, exceeding the Cost of Carry at the end of week and extending the incentive for physical suppliers to hold their tons off market.


The LME forward curve for Turkish mini-mill conversion margins has consistently struggled to rise above $150/mt, which is considered a breakeven level for most EAFs in the region. As a result, the paper markets are pricing in a rapid drop in this differential to come hard on the heels of recent gains. Whether or not this proves to be the case, we see great potential for arbitrage between different periods here.

The front end of the CME EAF conversion margin forward curve lifted a little on Friday, derailing what had looked like early Contango formation on Thursday. But this differential ends the week higher than its open, suggesting that the consensus outlook for US mini-mills may be shifting.


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.

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