Daily Futures Update 19/02/2020

EAF margin futures keep edging higher, finished product sentiment improved

EAF conversion margin futures moved higher again on Wednesday as sentiment for finished products continued to improve while long scrap futures position holders were happy to take some risk off the table. Both scrap futures markets are now trending towards Backwardation (beyond the front month), while Rebar and US HRC futures were decidedly flatter. Meanwhile LME FOB China HRC was offered lower – but this curve continues to trade in a flatter curve presentation than has been more usual.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

LME Scrap futures started to soften on Wednesday when concern mounted amongst the paper trade that the recent run up in prices is sputtering out, despite a number of new cargoes reported booked during the day. Rebar futures, in the meantime, edged slightly higher again with short position holders looking to cover their exposure on the off chance that prices rally from here.

US HRC FUTURES

US HRC futures overcame yesterday’s late stage selling on Wednesday and the curve was universally bid higher despite a drop in the weekly spot market index that settles the CME instrument. There has been a swift and fairly defined change in sentiment for this market – we will be watching extremely closely to see whether this is sustained. In the meantime, traders of spreads with the long end rooted in Q2-20 are sitting pretty.

FOB CHINA HRC FUTURES

A slight reduction in the spot market index that settles LME FOB China HRC futures seemed to break the deadlock between paper buyers and sellers on Wednesday, with the short side increasingly willing to cross the bid/offer spread.

US SCRAP FUTURES

CME Busheling futures moved further into Backwardation on Wednesday as spot market sentiment was buoyed further by the run up in prices for obsolete grades in the international market and as it became clear that midwest mills will struggle to attract tons from the coast at last month’s prices.

MINI-MILL SPREADS

The LME EAF conversion margin forward curve continued to move off its recent lows on Wednesday, with some periods trading as high as $150/t. Paper traders are increasingly sceptical that Turkish mini-mills will continue to pay higher for deep sea scrap, while a series of higher prints for the spot market rebar index is supporting this move.

With the CME Busheling futures curve trading further into Backwardation, the CME forward curve for US mini-mill conversion margins is creeping back towards spot market levels – although nearby prompts continue to trade at a discount to spot. Should this trend continue, we can envisage a clearer Contango presentation, providing plenty of hedging opportunities for steelmakers.

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.

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