Site icon

Daily Futures Update 27/03/2020

Capacity curtailments support Contango as physical scrap operators shun Carry Trades and liquidate remaining inventory

HRC futures continued to push higher on Thursday, capitalizing on the newfound enthusiasm that seems to have stemmed from the US stimulus The seizing of the world steel supply chain has quickly gathered pace this week as the continued spread of COVID-19 has triggered ever more severe counter-measures. For now, it looks like the capacity curtailments announced by a host of steelmakers have had the most impact and steel futures curves across the board are moving into Contango beyond the front few months. But there are also serious questions to be answered about demand – it seems increasingly unlikely that the world will emerge from this crisis, as it certainly will, with its trajectory unaffected. This scenario has made for extremely volatile trading – both in paper and physical markets – and we are charting some wild divergences both between correlated paper markets and different products and materials along the supply chain.

Exchange Prices at 1630 GMT

Disclaimer:  This report is issued by Price Consult Ltd, which is not a regulated entity. The report was prepared and distributed for information purposes only. The report may contain information and opinions which are the author’s own and may be used as the basis for trading undertaken by the author. The report should not be constructed as a solicitation nor offering advice for the purposes of the purchase or sale of any commodity, security, investment or derivatives. Whilst Price Consult has taken all reasonable steps to ensure this information is correct, Price Consult does not offer any warranty as to the accuracy or completeness of such information.Any person placing reliance on the report to undertake trading does so entirely at their own risk and Price Consult does not accept any liability as a result.


LME mini-mill futures shifted even further into Contango territory on Friday, when physical operators continued to avoid Cash & Carry transactions, preferring instead to liquidate physical positions at a very large discount to the nearby periods on the forward curve. Physical market players reported several lower-priced cargoes, culminating in an ex-USA sale at $205/mt by a major operator – all while May-20 was bid 10% higher. It’s clear the larger-volume players are intent in clearing out any remaining tonnage the are holding. Since this will likely starve supply once the COVID-19 crisis passes, this will likely further support the Contango in our view and continue to provide plenty of incentive for stockholders to hold onto their inventory for sale in a more orderly market.


US HRC futures continued to shrug off the impact of the COVID-19 crisis that Friday’s US HRC futures trade saw the forward curve build support at its new higher levels, with news of capacity cuts at all the USA’s integrated steel producers feeding speculation that reduced supply will be enough to counter depleted demand in the months ahead. But the COVID-19 crisis in North America is worsening, with the USA now overtaking China to report the largest number of diagnosed cases of any nation in the world. It’s all but impossible to assuage whether the crisis is having a larger impact on supply or demand fundamentals. But it’s clear from the forward curve that some very clear bets on timing and the ultimate recovery from the crisis are being laid.


Just like the US HRC futures market, the CME Busheling futures curve is being torn in opposite directions by supply and demand fundamentals. On the one hand, leading mini-mill groups indicate that their purchase requirements for the next few months will be significantly reduced. And, on the other, the collapse in domestic manufacturing activity will likely limit supply within the same timeframe. Spot market prices for alternative mettalics such as pig iron have been resistant to the same price gouging we have seen in the bulk market for obsolete scrap. Sellers edged a purely symbolic win on Friday, with Busheling futures moving slightly lower. But the final score is far from decided.


The front end of the LME EAF conversion margins forward curve shifted higher on Friday, when the continued liquidation of inventory by leading bulk suppliers gave mini-mills some breathing room amidst dwindling finished products demand. Still, longer-dated periods continue to trade in Backwardation and below the cost of production. Considering the likely path from resolution of the COVID-19 crisis and the resurgence of steel demand, this seems mis-priced. 

The improvement in forward CME HRC futures prices triggered a similar The growing support for US HRC futures pushed the CME EAF conversion margin forward curve into Contango territory (beyond the front few prompts) on Friday when appetite for longer-dated US HRC prompts outstripped demand for Busheling in the same periods. 


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:


Exit mobile version