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Bulk exporters spurn LME Scrap Contango

The futures market continues to incentivise inventory generation

It looks like physical deep sea market scrap sentiment is starting to soften, with news of lower-priced bookings circulating after the weekend. It’s surprising that accumulators have chased lower bids for prompt cargoes while the front end of the LME Scrap forward curve demonstrates a Contango well above the Cost of Carry – as much as $25/mt for just a few months. The paper market continues to incentivise inventory generation rather than dissipation. Meanwhile US HRC futures haved shifted towards a slight Backwardation (beyond the front end of the curve) as larger inventory hedgers seek to roll their short positions farther forward – Monday saw less confidence that US mills will follow their recent price increase announcements with another rise.

Exchange Prices at 1630 GMT

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The LME mini-mill complex Contango sustained on Monday, despite reports circulating of several physical cargoes purchased by Turkish steel mill buyers at progressively lower levels – it seems some accumulators believe that the market has peaked in the near term and are keen to offload inventory. Why they are ignoring a Contango of more than $25/mt into Jun-20 remains an unasnswered question. The LME Scrap futures curve continues to inventivise inventory accumulation rather than liqudiation.


The front end of the US HRC futures curve continues to climb, with the buy-side focus shifting slightly further forward into Jul-20 as the end of May approaches and the period starts to price out. Beyond the nearby, the forward curve remains very flat and, depending on the hour of trading, tending to a slight Backwardation. Cleared block trades support this pronation, with larger inventory hedgers keen to roll their short positions – even at a cost.


The froth in the CME Busheling futures market has deflated slightly and this forward curve continues to demonstrate a Backwardation. Monday trading indicated we are close to a ceiling for nearby levels, although this will clearly be defined by spot market sentiment as it evolves this month. News that the Illinois river will close at the beginning of July has market participants split on the impact of the news – some speculate this could trap more prime scrap in the Midwest while other feel this might make EAFs keener than they otherwise might be to suck up material. In the meantime, the contiued roll out of auto manufacturer restarts is likely to improve supply from recently tight levels.


Considering recent history, LME Metal Margins are starting to look positively celebratory for Turkish mini-mills, which continue to struggle between high scrap acquisition costs and a lacklustre spot market for finished products. With the front end of this curve now trading at a premium to spot market levels, paper market indicators suggest the spot market situation is likely to improve. However, the longer-dated Backwardation betrays less confidence in the longer term.

CME Metal Margin futures continued to gradually improve on Monday, with the front end of this curve also demonstrating Contango. But the balance of the curve continues to price well below historically-observed levels – confidence in the medium- to long-range outlook for US mini-mills remains very poor.


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.

Traders are starting to use the CME Group’s fledgling north Europe hot-rolled coil (HRC) contract to hedge physical business.

Volumes are currently too small to implement proper hedging programmes, but the intention of traders that have used the contract is to move away from physical positions and stocks, should liquidity continue to build.

The fourth quarter traded at €440/t today, for 500 t/month, as a new physical participant began using the contract. This was a premium to the underlying Argus index, which slipped by €0.25/t to €410 — the month-to-date average for May was €418.37/t.

The market flipped to contango this week, although it has flattened over the last few days on expectations that a revised steel safeguard and anti-dumping investigation into Turkey will limit import arrivals.

But the immediate spot market remains under pressure as mills try to patch up gaps in orderbooks for the next few months. Imports from the CIS, which operate on a much lower cost basis, were available at €380-385/t fca this week. Large buyers have been benchmarking purchases against this kind of level.

The contract traded the equivalent of 1,000t in its first month of trading, March, and 10,500t in April. This month it has traded 6,000t. This is a comparatively strong showing, given that the contract launched as Covid-19 pushed the world into lockdown.

The CME’s established US HRC contract launched at a much slower pace. In its first five months of trading, the equivalent of 15,760st were traded. The north Europe contract has traded 17,500t since its launch 9 March.


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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