Contangoes resume for Steel Futures

Outlook still mixed on EAF prospects

Once again the steel futures complex is tending towards Contango, with a softening in sentiment for prompt Deep Sea scrap supply undermining the front end of the LME Scrap curve and a chronic drop in the weekly CRU index print on Wednesday confusing pretty much everyone when it comes to US HRC futures. Once again CME Busheling futures were the exception to the rule as this market switched to Backwardation, while prompt market bullishness escalated. Regional melting margin futures still point to differing EAF prospects, with the immediate future looking more promising for Mediterranean producers while their compatriots in the US seemingly have a more gradual recovery to look forward to.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

LME EAF futures have drifted back into Contago, lead by a fairly sizeable drop in values for concluded CFR Turkey deep sea cargoes. Two fresh purchases were reported around $10/mt down on most-recently traded levels and nearby LME Scrap futures prompts saw more selling as a result. Still this curve is trading at a fairly sizeable premium to spot – even at the front end. Paper markets continue to incentivise physical scrap generation more than the physical.

US HRC FUTURES

Wednesday’s frankly inexplicable move in the CRU index that settles CME US HRC futures has left paper trading in this market confused. The 10%+ week-on-week drop in the index initially flabbergasted paper market participants on Wednesday. But on Thursday the derivatives market disregarded the prior day’s index move and traded slightly higher – plenty of short covering at the front end of the curve. Sellers are cagey and, honestly, we’re not entirely surprised – no wants to get caught by an index reversal of the same factor. Longer-dated periods remained more liquid at sideways levels.

US SCRAP FUTURES

Over the past few days the CME Busheling futures curve has undergone a fairly dramatic reversal, shifting from an aggresive Contango into Backwardation as the physical market view rapidly evolved into what looks like a sizeable hike at the May settlement. It’s a shame this shift in sentiment hasn’t been captured by a daily spot market index. But, against this backdrop, the fresh Backwardation makes sense.

MINI-MILL SPREADS

LME Melting Margin futures are on the rise, benefiting from today’s decline in the CFR Turkey scrap market as news of two cargoes purchased around $10/mt lower on the most recent leves circulated. The curve remains in Backwardation as mini-mill capacity curtailments continue to catch up with depleted demand. Physical market particioants are watching carefully.

The CME EAF Melting Margin futures curve sustained its Contango on Thursday, with mini-mill operators benefiing from a switch in the CME Busheling futures curve shape. Still, the front end of the curve looks like excellent value for bulls, trading below the cost of production.

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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