US mills spark short covering with price hikes

Steel Futures curves present flatter shapes with confidence mixed

With most of Europe on holiday, Friday’s steel futures market focus was on US HRC with two leading producers announcing significant price increases with immediate effect. More bullish traders speculated that mills have done enough to curb capacity in line with dismal demand and rushed to cover shorts as they could. Nonetheless, feedback from the physical market on the move was mixed. And the US HRC futures curve is already tending to a flatter shape.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

News of further declines in the Deep Sea scrap market did nothing to undermine the nearby Contango on Friday, with the front few LME Scrap prompts still trading at a premium to spot. But the downsward shift over the past few days has shifted longer-dated periods of this curve into Backwardation and LME Rebar futures have followed the same trend.

US HRC FUTURES

News that two leading US steelmakers have announced signficiant prices increases sent US HRC futures short-covering into overdrive ahead of the weekend. Coupled with Wednesday’s extreme index drop, this has switched the front end of the CME US HRC futures from Backwardation into a Contango well above the cost of carry. These physical market players that managed to pick up stock ahead of the price increase announcements have a fantastic opportunity to hedge their stock, as a result.

US SCRAP FUTURES

CME Busheling futures continued to present in Backwardation with nearby US HRC futures short covering pulling the front end of this curve higher as well. Q3-20 and Q4-20 are still well offered in line with expectations that manufacturing will be back up and running at this time, loosening supply. All in all, a great opportunity for more bullish inventory holders to lend their exposure to the market.

MINI-MILL SPREADS

LME Metal Margin futures are now trading in a similar curve shape to their underlying outright curves – a rare occurence in this market. Almost all periods are at or above the cost of production. But longer-dated periods are still well-offered.

Early paper market signs for US HRC price hike announcements look supportive, with the CME Metal Margin futures curve edging back towards break-even levels on the news.

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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