Careful of the Carry

The LME Scrap Contango is once again incentivising cargo sellers to hold onto their tons

It turns out that all Steel Futures needed was a little extra rest and almost all markets stormed out of the traps after the long weekend, with curves pricing significantly higher at the front end through the day. Today’s show-stopper was LME Scrap, which once again surged into a medium-term Contango that well exceeds the cost of carry and provides a generous incentive for accumulators to hold onto their stock. But the physical market remained active, with those that are presumably unaware of the additional $10-15/t they are leaving on the table agreeing fresh cargo sales just above $250/mt CFR Turkey.

Exchange Prices at 1630 GMT

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The front end ferrous scrap Contango was back with a vengeance on Monday, when physical market operators once again left money on the table by selling for prompt delivery rather than holding onto their tons and selling paper above the cost of carry. And the LME Rebar futures curve also incentivised rebar inventory holders to hold onto their positions as well – the finished product curve kept pace with its raw materials brethren through the day despite little sign from the physical market that spot prices are poised to move higher.


US HRC futures trading was quiet on Monday, taking a brearther from a busy session last week that even permeated into to the VE Day holidays on Friday. Traders are digesting the impact of recent mill price hike announcements and trying to understand what rapidlay shifting raw materials dynamics meanfor steel mills that are operating with limited capacity utilization.


The front end Busheling buyers continued to push prompt periods even higher on thin volumes on Monday as sellers wondered what they are missing – physical market players report consensus that primes will be up $30/t on a supply pinch but the curve is already pricing in more susbtantive increases. This must be why the balance of the curve remains relatively better offered, albeit at much higher than levels we have become accustomed to in the past few weeks.


For once, the shift higher for LME Scrap futures has supported LME Metal Margins, with paper traders speculating that a sustained ramp up in Turkish import values must be matched by a corresponding improvement in finished product prices. There remain bargains to be had at the back end of this curve.

The twin realities of the physical spot market and the likelihood that mills will continue to curtail output if they are unable to generate profitable conversion margins kept CME Metal Margin futures stretching into Contango on Monday. We expect this trend to continue.


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.

HRC import prices in Europe are coming under pressure from the pending EU safeguard measures review, which could see changes introduced from July, as well as the newly opened anti-dumping investigation on Turkey.

The Argus daily Italian index fell by €1.50/t to €400.25/t ex-works, while the northwest EU index edged down by €0.25/t to €419.75/t ex-works.

Market participants see the quotas tightening because of pressure from Eurofer, with some small buyers even supporting the association’s decision, as lower HRC import prices trickle down to downstream flats. But most service centres and distributors fear even tighter margins, should the EU restrict imports further. Italian steel and scrap association Assofermet said last week that it expects a shortage of EU material in the third quarter on production cuts and a possible resurgence in demand, which would be exacerbated further if import quotas are reduced. It also opposed the case against Turkish HRC, which EU mills allege is being dumped with a 4-8pc margin. European mills often turn to Turkey to alleviate pressure on spot pricing in Europe — today a seller said EU material was available at $390/t fob, but lower prices have also been heard in the past two weeks.

At the same time, market participants reported that Turkish HRC was widely on offer today at $390/t fob. Offers into Italy were made at €380/t cif, which would net back at below $390/t fob. Russia has been able to offer HRC into Europe more competitively, albeit with limiting terms, but not too far from bid level ideas of buyers at €365-370/t cif. Indian material was heard on offer at €390/t cfr. But few buyers in Europe are willing to import at present, given the expected tighter import measures. When EU mill material is available not too far off import prices and on shorter lead times, there is no reason for buyers to take the risk. One Italian mill is seeking €400/t ex-works, but with an extensive list of premiums for quality and dimensions, while another one is ready to match import prices in order to not lose orders. German mills were heard targeting €415-420/t ex-works.


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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