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Front End Contangoes conceal longer-dated nervousness

Most steel futures remain well-offered beyond nearby periods

Nearby steel futures continued to show strength on Thursday, buoyed by a voaltile yet eventually positive day for Chinese onshore futures. Reports that Chinese imports of semi-finished products are already increasing has stimulated buy-side interest for LME mini-mill complex futures. And the renewed bullishness sparked by last Friday’s price hike announcements by US mills has sustained the country’s steel futures complex all the way through the short week. Still, the reality of the economic damage inflicted by COVID-related lockdowns around the world is unavoidable and almost all curve shapes are now tending towards longer-dated Backwardation.

Exchange Prices at 1630 GMT

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LME mini-mill complex futures trading turned more bullish on Thursday ahead of the long weekend, with reports circulating that claimed a fresh inflow of inquiries from Turkish mills at singificantly higher levels. Although the improved sentiment also pushed LME Rebar futures higher, the more mixed picture for finished products weighed on the balance of both curves, which remained in Backwardation.


Short covering continued to push the front end of the US HRC futures curve higher on Thursday, with Jun-20 pushing up to trade nearly $100/t above the most recent weekly index print. But the balance of the curve remained flat, with sustained selling in Q4-20 and beyond. It seems paper traders are not optimistic on the outlook for finished products pricing once the US has emerged from lockdown.


The CME Busheling futures Backwardation became more pronounced on Thursday with bulish spot sentiment pushing Jun-20 levels to fresh highs, while longer periods were offered lower. Considering CME Metal Margin futures, we can understand why this looks like a good hedging opportunity.


The Backwardation in LME Metal Margin futures became more pronounced again on Thursday, with the tail end of the curve dropping back below break even levels for Turkish mini-mills. These longer-dated periods still look over-offered considering the likelihood of EAFs reversing capacity curtailments while they are unable to generate a positive margin.

CME Metal Margin futures have sustained what, to our eyes, looks like a more logical Contango that anticipates US mini-mill profitability improving over the next few months. However, the back end of this curve also looks very low compared to historical levels.


CME recently launched EU HRC futures.

Argus, the provider of the settlement index for this instrument, has kindly allowed us to republish their daily spot market commentary here while we gear up for more specific paper market coverage.

London, 7 May (Argus) — Northwest European steelmakers face a lack of orders for May-June, meaning more production cuts will need to be implemented to prevent prices slipping.

Argus‘ daily northwest European hot-rolled coil (HRC) index dropped by €3.75/t to €420/t ex-works today, taking the month-to-date average to €423.20/t.

Import restrictions were the primary talking point, as ArcelorMittal said an investigation was being launched against Turkish HRC imports. The Turkish Steel Exporters Association said the case alleges a 4-8pc dumping margin.

This came on the back of expectations that the steel safeguard quota will be reduced given the demand destruction inflicted by the Covid-19 pandemic. Some suggested the quota will be based on an earlier period when imports were lower.

However, the immediate concern for mills was their skinny orderbooks. In the auto-supply chain many service centres and sub-suppliers have deferred coil deliveries, meaning they will need to buy less going forward.

While import appetite was subdued given the talk of import restrictions, prices remained competitive and were leverage for buyers.

One buyer was offered €427.50/t delivered domestically, but said they should be able to obtain lower using cheap imports. Russian material was offered at €380/t fca for June shipment, July/August arrival, which equates to sub-€360/t on a cfr basis stripping out the €17.60/t duty and discharge. Few would be buying August arrival imports, however. A domestic mill said it was selling above €400/t ex-works, but was concerned prices could drop below this level.

Indian cold-rolled coil was offered into Antwerp at $490/t (€454/t cfr), while Brazilian material was available at €470/t fca. Turkish hot-dip galvanised has been offered into Europe at competitive levels of €500/t cfr. Turkish re-rollers have been keen for orders of late in the face of aggressive competition from CIS sellers.

While some original equipment manufacturers restarted recently, it appeared there was sufficient inventory in the supply chain, meaning they would not have to book for some time. Where project RFQ’s arose, many service centres were trying to win the business, meaning it was not profitable. This decline in sheets and blanks meant buyers were not willing to pay more for coil, and liquidity was very low.

The Argus daily Italian index fell by €3.50/t to €401.75/t ex-works, while the weekly cif Italy assessment dropped by €10 to €370/t.

An Italian mill told some market participants that it expected to cut capacity by around a fifth, but it did not confirm this to Argus. The decision has been taken owing to low order intake, ample warehouse stocks and higher scrap prices.

Although Italian prices have come under pressure in the past three months, the news that the European Commission has started an anti-dumping investigation on Turkish HRC and the anticipated cut in the safeguard import quotas may soon lend support to the mills.

A Turkish mill was heard to have sold 2,000t to Italy this week at $400/t cfr to be shipped in a previously fixed vessel.


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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