LME Scrap Contango grows again

The opportunity for Cash & Carry is glaring

The extreme nearby Contango for LME Scrap futures continued to dominate attention amongst steel futures trading on Tuesday – after all, the physical spot market has shown signs of softening over the past few days and the front month premium that is now trading is equivalent to 10% of the value of the underlying . This offers huge potential for anyone holding physical to execute Carry Trades with a market scenario that doesn’t indicate obsolete grades of ferrous scrap are in particularly tight supply. And rebar futures are trading in line, despite spot market finished product prices idling just below $400/mt and slightly above profit making levels for Turkish EAFs. US steel futures market were uncharacteristaclly stable, in the meantime, with most volume trading at sideways levels. Once the weekly HRC index prints tomorrow, we suspect volatility will rise.

Exchange Prices at 1630 GMT

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LME mini-mill complex futures continued to reach higher at the front end, with the LME Scrap front month Contango extending to more than $30/mt for just a few weeks of Carry. No further reports of fresh bookings from the phsyical market – perhaps more accumulators are eyeing this Contango and choosing to hold onto their cargoes. With this much of a premium available, who can blame them?


Time spreads continued to dominate US HRC futures trading on Tuesday, with the forward curve edging flatter within Cal-20 and even towards a very slight Contango. This flatter curve presentation is proving to be an excellent stimulus for large-sized trading, with plenty of volume clearing in the voice broked market. Screen activity was modest, in the meantime. Although we expect this to change tomorrow when the weekly index that settles CME’s instrument will be published.


Relative value traders provided buoyancy to medium- and long-dated CME Busheling prompts on Tuesday, with the tail end of the curve moving higher in line with some renewed confidence for US HRC. Nearby periods seemed to have tapped out at a ceiling for now – paper traders are looking to the physical market for further direction.


LME Metal Margin futures traded mostly sideways on Tuesday – there is clear support being demonstrated for this differntial back at profit-making levels for Turkish EAFs.

Likewise CME Metal Margin futures were broadly unchanged, with some very slight improvement in confidence for US HRC futures being matched by punchier bids for CME Busheling.


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.

London, 19 May (Argus) — European hot-rolled coil (HRC) prices continued to slip today on lethargic demand, as participants grapple with the likely decline in automotive demand going forward.

European automakers surveyed by Argus expect their rolled steel demand to be 30-40pc of normal volumes over the rest of this year, as they slowly restart lines after Covid-19 stoppages. Sales of premium vehicles have risen quickest following the crisis, especially for those firms linked to China. One company has seen Chinese sales recover to similar levels as last year, while another has seen firmer uptake of premium models, which often use more expensive aluminium sheet, as opposed to steel. More steel-intensive low- to mid-range vehicle sales are floundering, as evidenced by the 76.3pc drop in European passenger car registration in April, and the 38.5pc drop over the first four months of the year combined.

First, second and third-tier automotive suppliers all have excess inventory after the supply chain ground to a halt almost overnight in mid-March. They are pushing OEMs to take deliveries, but the automakers themselves are still trying to ascertain how much they will need after deferring contractual deliveries and drastically reducing offtake.

With contract uptake slowing, and disappearing in some cases, mills have had to channel material into the commodity grade sector, competing with imported tonnes. Argus‘ daily Italian hot-rolled coil index fell by €3.25/t to €390.50/t ex-works. The daily northwest Europe HRC index slipped €0.50/t to €409.50/t ex-works.

In the Italian domestic market one seller was focusing on large customers, as some buyers deemed its delivery terms unreliable, while another was able to provide the most competitive, effective prices. Large gaps were emerging between prices for sizeable and small orders, with business done on a case-by-case basis as price indications widen amid a mixed demand outlook. Volatility could increase over the summer as real demand oscillates — Italian mills were cautiously avoiding giving price indications today as they were hungry for orders, opting to meet price targets quietly to avoid losing business.

Buyers will likely cover any stockouts locally, or from other European mills, given their short lead times. Certain north European producers, especially those exposed to the automotive sector, were active in Italy — as well as the Middle East and North Africa — with very competitive prices.

Some mills were suggesting they could withdraw from the market for now, as they were expecting an imminent announcement on the European Commission’s safeguard review, more quickly than most anticipated. There was an expectation that some quotas could be reduced by 30-50pc, and that they could all transition to quarterly.


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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