Daily Futures Update 16/04/2020

Paper trading rangebound as market awaits finished product price recovery

Most steel futures settled slightly lower on Thursday as the paper market watched the physical spot market keenly for signs of support. Turkish mini-mills have floated higher rebar export offers in the hope of recouping higher raw materials costs and to hang on the coat tails of a so-far Asia-focused recovery. In the US whispered rumors of EAFs idling even more capacity kept both CME curves trading in Contango.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

Trading in the LME mini-mill futures complex turned more sedate on Thursday in line with a lull in physical scrap market activity – attention is clearly focused on whether higher finished product offers will be accepted in order to justify the recent run-up in prices. As a result, both curves edged slightly further into Backwardation territory beyond the front month. But this nearby Contango still provides a really compelling hedging opportunity for anyone holding inventory.

US HRC FUTURES

US HRC futures continued to edge higher on Thursday with whispers of further steelmaking capacity utilization constraints encouraging further short covering. The Contango in this instrument remains pronounced for now, with many paper market participants anticipating a return to normal market conditions at the end of the year. But the likely ongoing economic aftermath of the present situation could well make the Carry potential of this curve shape too tempting for hedgers to ignore.

US SCRAP FUTURES

Some of the recent bullishness we have seen in CME Busheling futures drained today as concerns regarding US domestic steelmaking capacity utilization became more apparent – the curve moved slightly lower, as a result. But the Contango sustained here as well, providing plenty of incentive for the more canny stockholders to hold onto their tons.

MINI-MILL SPREADS

LME Melting Margin futures held their head above break even for Turkish EAFs on Thursday, even despite an outright sell-off in the complex. The paper market focus is clearly on finished products now, waiting to see whether higher offer prices will be accepted.

CME Melting Margin futures showed signs of recovery on Thursday, with all periods now trading above $200/t and further back towards profit-making territory for US mini-mills. If rumors of further EAF outages in the weeks ahead prove to be true, this curve may find further support.

GLOSSARY

This newsletter references various technical words, phrases acronyms and codes.

You can find explanations for many of these terms in The Board Report glossary.

The product codes and prompt date structures we utilize are as follows:

Calendar Months:

Instruments:

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