Greater Support for Finished Product Futures

But Metal Margin curves continue to point in opposite directions

The two tradeable Metal Margin futures curves continued to point in different directions on Monday. Softer sentiment for prompt scrap supply coupled with a tick up in the spot rebar index helped the front end of the LME EAF differential curve edge slightly higher. But the front end of the comparable CME curve was still plumbing new depths. Meanwhile, there are early signs that a bottom is builing into neary periods of US HRC futures markets. But this is also encouraging a flatter curve shape, in line with the rest of the steel futures complex.

Exchange Prices at 1630 GMT

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LME Scrap futures drifted lower on Monday, with news circulating of a much lower-priced cargo booking. But LME Rebar futures defied this trend when it became apparent that a significant number of Turkish steelmakers have downed tools alltogether. As supply starts to balance more closely with depleted demand, it’s not suprising to see both LME mini-mill complex curves edging back towards Contango.


US HRC futures trading on Monday was pretty much sideways, although sellers were perhaps slightly more willing to cross the bid/offer spread at the tail end of the curve. Physical market participants were still happy to cover shorts at the front end, perhaps reinforcing the view that spot market prices are close to the bottom. Even so, the Contango still offers an excellent chance to offset inventory risk.


Last week’s surge in short covering has shifted CME Busheling futures into a clear Contango as the rapid escalation in bullish sentiment panicked many market participants into lifting whatever bids they could find. Later trading saw something of a ceiling established around $300/t. But even these levels provide plenty of incentive for those stocking prime grades to hold back supply.


Improved LME Rebar market sentiment coupled with a perceived softening in spot market sentiment for scrap is paying dividends for forward mini-mill margin hedgers and LME Metal Margin futures rose back above $155/mt at the front end of the curve on Monday. Longer-dated periods remain offered close to the cost of production, which doesn’t tally with projections that rebar demand will likely resume after the COVID crisis has passed.

Meanwhile CME Metal Margin futures stuck in Contango, albeit largely as a function of how low nearby periods are offered. Although the US scrap trade now appears convinced that US EAFs will pay out large for prime scrap at the May settlement, there is as yet no sign of frozen finished products demand thawing. And longer-dated periods still look under-valued when one considerss the differentials US mini-mills normally command in normal market conditions.


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:


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