Daily Futures Update 20/04/2020

Steel Futures listless amid oil market collapse, US Contangoes persist

The huge collapse in the oil market dominated news in all commodities markets on Monday, with the WTI front month trading at negative values (and dramatically so, at that) for the first time. Steel futures was understandedly quiet as paper traders first attempted to consider the impact of the 100 million barrels of oil due to be delivered next month and then understand what this means for steel markets. No easy answers here, and most steel futures drifted sideways with the Contango demonstrated by US instruments sustained at the end of the day. We suspect this curve shape may become less pronounced in the days ahead as more physical market participants take potential inventory risk off the table.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

The LME mini-mill segment held its ground on Monday, shrugging off a sour start for broader commodities markets with a shocking decline in oil prices to negative values. With no fresh news of cargoes from the physical market, paper traders maintained a holding pattern through the day, unsure of whether higher finished and semi-finished product prices will be accepted or whether mills will be unable to take any more raw materials at the most recent levels.

US HRC FUTURES

Nearby US HRC futures came under renewed selling pressure on Monday as the dramatic upturn in the oil market spooked some of the buyers who have recently been checking levels. Although some small screen bids sustained the technical Contango, several sell-offs during the day indicated that the Carry positive forward curve could rapidly unravel with little encouragement. Considering WTI closed at nearly $40 negative per barrel, we wouldn’t be shocked to see businesses that might find themselves with inventory any time in the next 12 months availing themselves of the remaining Contango.

US SCRAP FUTURES

The CME Busheling futures trade is sticking to a ‘shortage of supply’ narrative and this forward curve also remained in Contango – albeit with some traders happy to take profits on longer-dated periods. Considering the LME Scrap futures forward curve shape, a sell-off in CME HRC market could well lead to a flattening here as well.

MINI-MILL SPREADS

LME Melting Margin futures sustained at just about profit-making levels after the weekend with the paper trade uncertain whether Turkish EAFs will be successful in winning fresh sales prices that will justify the recent round of higher-priced ferrous scrap bookings.

CME Metal Margin futures also traded sideways as the paper market tried to make sense of the dramatic developments in the oil market, that will doubtless have a huge impact on the world economy. Flight to safety would normally be supportive of the Contango curve shape but, in this unprecedented situation, it’s likely all commodities markets will trade unpredictably from here.

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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