Daily Futures Update 01/04/2020

More sellers take advantage of record LME Scrap Carry Trade Opportunities, nearby US steel futures offered lower again

While the LME Scrap futures Contango finally had a few more sell-side takers on Wednesday, US-focused steel futures markets maintained the trend of longer-dated periods attracting higher bids than the front end of the curve. Q2-20 US HRC futures sagged as it looked increasingly likely announced steel mill output reductions will not be enough to keep track with collapsing demand. As a result, CME metal margin futures continue to fall, although LME EAF conversion margin futures found a little support.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

LME Rebar futures rose slightly on Wednesday, responding to the run up in the LME Scrap futures curve over the past few days despite a dismal spot market with barely any activity reported. And the aggressive LME Scrap futures Contango finally proved too tempting to bare for some physical players, with more sellers coming into the market at very large premium to spot. There’s still plenty of room for those others holding stock to implement carry trades at record-breaking levels here.

US HRC FUTURES

Q2-20 sell side interest was sustained in the US HRC futures market and this period was pushed lower again in a screen-focused day of trading. Last week’s improved sentiment that US steelmaker output cuts would provide some support for spot pricing has evaporated as the COVID-19 crisis has intensified in North America. Longer-dated periods were offered as well, albeit by a lesser amount – leading to a stronger medium- to long-term Contango.

US SCRAP FUTURES

Surprisingly, CME Busheling futures traded positively on Tuesday while Reductions in US spot market demand for finished products have become more and more apparent over the past few days and CME Busheling futures traders were happy to offset any long-side exposure they have been holding. As more dockside operators close their gates the supply pool to the domestic market seems to be building and sentiment is worsening as a result.

MINI-MILL SPREADS

The slight recovery in LME Rebar futures trading conditions helped to stabilize LME EAF conversion margin futures on Wednesday and the curve moved slightly higher. However, longer-dated periods remain in distinct Backwardation and continue to represent a buying opportunity, in our humble opinion.

Meanwhile CME EAF conversion margin futures continue to sag, trading closer to $200/t and loss-making territory for mini-mills producing flat products on Thursday. News of sustained auto manufacturing outages due to the COVID-19 outbreak means that CME Busheling futures declines are not keeping pace with those posted by CME HRC.

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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