Daily Futures Update 15/04/2020

Higher Finished Product Offers lead Steel Futures in cautious revival

International market finished steel product prices are starting to pick up in as news of China’s gradual restart seems more promising than many expected and steel mills work hard to claw back some of the gains they have paid on raw materials. LME Rebar futures were the prime mover higher, with this and the LME Scrap futures curve still tending slightly towards Backwardation – paper traders are not yet convinced of the sustainability of this move. In the US there is buy-side interest for HRC futures as well, although this is longer-dated and keeping these curves firmly in Contango. And, in domestic US scrap futures, the ‘supply-constrained’ camp continues to win out over those who see demand as pretty much non-existent.

Exchange Prices at 1630 GMT

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LME Rebar futures led the Turkish EAF complex higher on Wednesday, when the spot market index posted a significant hike in line with increased mill offers for fresh export cargoes. Refreshed demand from mini-mills has pushed the scrap marker significantly higher over the past few weeks and finished products sales team are likely only able to justify taking fresh rebar orders if they can capture at least a portion of the scrap price gains. But, for the time being, physical demand is poor and paper sellers are hovering on the sidelines looking for hedging opportunities.


US HRC futures continued to edge higher on Wednesday when the weekly index that settles CME’s instrument surprised with a smaller decline than many anticipated – daily spot market indices are now all firmly below $500/t. A fair proportion of the buying looked like short covering, with US steel demand still massively disrupted by the COVID-19 crisis and associated lockdowns. But paper traders are clearly keeping one eye on the exit and the best periods to bid once the US emerges from the crisis. The Contango continues to look a little pricey compared to the cost of carry. But, with nerves high and some extreme shifts in physical market fundamentals, we could still see some gains here.


CME Busheling futures continued to surge higher with Q4-20 breaching $300/gt as the Bulls were out in force and keen to pick up new positions, even though the LME Scrap futures curve is gradually shifting towards Backwardation. US EAF capacity utilization is still relatively opaque, with plenty of announced reductions made by the indicated side of the pitch. But, if signals from steel mill buyers are to be believed, this Contango is in danger of over-heating. Rumours of a fresh round of prime scrap import cargoes booked by major US buyers may throw up a speed bump for those betting on a sustained market revival.


LME Melting Margin futures are now back in profit-making territory for Turkish mini-mills all the way into Cal-21, even though higher steel mill offers for semi-finished and finished products are so far anticipating an uptick in demand. If higher rebar prices do take hold, it’s conceivable we could see longer-dated periods of this curve reaching for higher levels.

CME Melting Margin futures continued to be pummeled at historically-low levels, despite reports that US EAF capacity utilization has been seriously reduced and there was more support for US HRC futures on Wednesday. The CME Busheling paper trade remains convinced that constrained supply will trump smaller mini-mill buying patterns.


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