Curves soften slightly as paper trade becomes more cautious
Tuesday’s steel futures trading was a relatively quiet affair, with an early rally in onshore Chinese markets failing to stimulate further gains in the wider world. It looks like some ferrous scrap accumulators started to take note of the LME Scrap curve, which still represents a significant premium to spot market levels. Meanwhile US HRC futures sentiment softened and this curve remained particularly flat through the day.
Exchange Prices at 1630 GMT
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LME SCRAP & REBAR FUTURES
Physical inventory hedgers gradually began taking advantage of the premiums provided by both LME Scrap and Rebar futures curves on Tuesday and longer-dated periods softened slightly. But, with reports of fresh physical sales concluded at sideways levels, it looks like there are still plenty of bulk vessel sellers happy to leave $10/mt on the table.
US HRC FUTURES
US HRC futures bullishness began to dissipate slightly on Tuesday, with the weekly index that settles CME’s instrument due to print tomorrow. The whole curve softened slightly after a series of block trades cleared at lower levels than last traded. But there remains plenty of potential for those picking up inventory to offset their risk at very attractive levels.
US SCRAP FUTURES
Nearby CME Busheling futures contiued to trade higher on Tuesday, with the paper trade awaiting the imminent monthly index print for May. Paper buyers seem convinced this market will continue to surge higher into June, but the balance of the curve is in clear Backwardation.
Bargain hunters provided some support for long-dated LME Metal Margin futures on Tuesday, edging the far end of the curve back to break even levels. But the whole curve continues to trade at a discount to spot levels.
The CME Metal Margin futures curve softened slightly in line with more cautious US HRC futures trading on Tuesday, reducing the Contango. As the medium-term supply and demand picture for prime scrap in the US becomes more clear over the next few weeks, we expect this trend to reverse.
EU HRC FUTURES
Argus, the provider of the settlement index for this instrument, has kindly allowed us to republish their daily spot market EU HRC commentary here while we gear up for more specific paper market coverage.
A steeper contango is developing in the NW EU market, reflecting the expectation import constraints will support the market going forward. Right now mills are having to cut prices to move spot tonnes as contractual offtake is slow; some mills even reneged on some volumes when prices were rising earlier this year, and are now paying the price.
European hot-rolled coil (HRC) prices moved down today as mills discounted to move product amid lethargic demand.
Argus’ benchmark daily northwest European HRC index dropped by €5/t today to €414.75/t ex-works, taking the month-to-date average to €421.50/t. Those mills that cancelled contractual cargoes on buyers earlier in the year when prices were rising had to find alternative destinations for the material. German producers were heard to be aggressive, as they tried to offload material previously destined for the automotive industry. Russian material was quoted into Antwerp at €480-485/t fca, including discharge and duty. The CME Group forward curve actually nudged up slightly, as traders bet on import constraints supporting prices in the second half of the year. June was quoted €5/t higher at €430-445/t, while July/4Q was up by €7.50/t at €435-455/t.
The daily Italian index slipped by €2.75/t today to €397.50/t ex-works. Demand in Italy remained weak, and there was growing concern about the new orders across mills, end-users and processors. Any companies heavily linked to the automotive industry were suffering, while those primarily serving construction and white goods were in a slightly stronger position. Deliveries to many automotive sub-suppliers have been rescheduled, while many other buyers are not enquiring actively with an intention to purchase. With no guarantees about delivery terms, one mill was primarily focusing on the largest of buyers and readily matching imported prices, the lowest of which today were heard at €370-375/t cif. The largest customers were the only ones still considering imports a viable option in light of the expected safeguard revision and the anti-dumping investigation on Turkey. The devaluation of the lira had provided mills wiggle room and a window of selling opportunity in the past few weeks, but it was becoming increasingly hard for them, considering concerns about import measures. Another Italian mill with an extensive extras price list was heard last week to be implementing production cuts amid ample stocks and higher-priced scrap. Today it was also heard that it might be bringing forward ladle maintenance, enabling it to further cut output. The mill’s strategy has for a while now been to be strict on commodity grade coils pricing, but give discounts on extras.
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