Short covering gains pace

Nearby buy-side interest helps finished product futures slightly higher

Tuesday steel futures trading was a more positive affair, with shifting dynamics in the Mediterranean scrap market supporting outright levels for LME Scrap and Rebar futures while short coverers pushed the front end of the US HRC futures curve higher, in what looked like another delayed reaction. The potential for increased competition in deep sea cargo procurement coupled with a fairly dismal outlook on rebar demand weighed on the LME Metal Margin futures curve. But the increased confidence that US mills will push through their recently announced price increases (and more), helped the front end of the comparable CME curve to higher levels.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

Reports that Egypt will increase duties on steel inputs caused a mild rally in LME Scrap futures on Tuesday, with paper traders specualting that Turkish mills will have to jostle harder against their competitive neighbour in order to secure fresh supply. Increased paper buying confidence also buoyed the LME Rebar futures curve slightly higher, although the spot market still looks pretty weak.

US HRC FUTURES

Another delayed drop in US HRC futures with nearby short coverers pushing hard into the market on Tuesday, having ignored farily sizeable lower offers on Monday. Confidence is clearly building that the price increases announced by mills last week will stick, and indeed be followed up with more. But the balance of the curve moved into a flatter shape. We wouldn’t be surprised to see longer-dated periods shifting into Backwardation if the spot market does indeed run up quickly.

US SCRAP FUTURES

A picture is building of an approximate 10% increase in the monthly settlement for US domestic scrap in a few days, and paper trading found its groove on Tuesday with plenty of time spreads changing hands. This curve is now firmly in Backwardation territory, which makes sense considering the physical supply and demand picture. Although the market is tight this month, US domestic steelmaker capacity utilization is approaching 50% and showing few signs of improving.

MINI-MILL SPREADS

No real change for LME Metal Margin futures on Tuesday, with the reports of a potential spike in Egyptian scrap demand adding another headwind for Turkish EAFs who have struggled to secure higher-priced rebar bookings. Still, the longer-dated periods look pretty cheap.

Increased nearby US HRC futures confidence translated to a marginal improvement in CME Metal Margin futures on Tuesday as the outlook for next month’s settlement index started to stabilize. Those looking for Carry potential can focus 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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