Forward EAF conversion margins edge higher, finished products pessimism weakens
The forward curves for EAF conversion margins moved slightly higher on Tuesday as steel finished products futures showed tentative signs of recovery. Scrap curves traded in a presentation that supports an outlook of healthy demand and limited supply, while US HRC futures short coverers chased nearby offers. But there was a market increase in sell-side interest as the day progressed – plenty of market participants are still extremely nervous.
Exchange Prices at 1630 GMT
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LME SCRAP & REBAR FUTURES
The LME EAF complex traded mostly sideways on Tuesday, although the front end of the LME Rebar futures curve lifted slightly in line with an increase in the daily spot market index. Scrap futures remained well supported but paper buyers declined to lift higher offers while waiting for further pointers on direction from the physical spot market.
US HRC FUTURES
US HRC futures were strongly bid higher in early trading, with a wave of short covering pushing Mar-20 to $565/t and the balance of the curve close to these levels. But, as the day progressed, the mid section of the curve was bashed lower again leaving the medium- to long-term shape in Contango.
FOB CHINA HRC FUTURES
Another quiet day for LME FOB China HRC futures on Tuesday, when the spot market index printed unchanged and the trade chatter continued to be dominated by speculation on the impact of the Coronavirus outbreak.
US SCRAP FUTURES
CME Busheling futures shifted into Backwardation on Tuesday when nearby short coverers chased offers and sought to roll their exposure further forward. This curve presentation seems to chime with limited physical market supply and healthy demand. The question is whether this demand will sustain if finished product prices continue to tumble.
LME EAF conversion margin futures moved off their lows in quiet trading on Tuesday as the spot market index for rebar kept pushing higher. Considering these levels still imply that Turkish mini-mills will struggle to extract profit margins in 2020, paper market sentiment still remains particularly bearish.
The CME mini-mill conversion margin forward curve pushed further into Contango on Tuesday, having presented a flatter shape early in the day. The shift puts longer-dated periods back at levels that match recent bumper profitability for EAF-based steelmakers in the USA, so may prove an attractive hedging opportunity.
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