Presentation: Tradeable Metal Margins

Analysing the impact of the COVID Crisis

The Board Report Founder Phillip Price participated in the SGX Commodities Unplugged online event on Tuesday, talking about tradeable Metal Margins and the impact of the COVID crisis.

EAF steelmakers in all regions have experienced a fundamentals pinch due to the crisis, with demand for finished products significantly reduced while scrap arisings have also dropped.

This has lead to relatively larger declines in Metal Margins than those for Chinese BOF-based producers.

In the USA, we are starting to asee auto manufacturers restart in May, with further restarts due through June, according to announced schedules.

This should improve Busheing supply. In addition, further import volumes from Europe are due to make US landfall soon and will continue to do so for at least the next month.

Additionally, the supply picture for scrap substitutes is improving – Nucor has restarted its DRI facility in Trinidad and pig iron imports continue to flow.

We imagine there are likewise significant efforts to include a larger proprtion of obsolete grades in the EAF melt, where possible to do so.

In the internatonal market, sentiment for obsolete grades is softening as it looks like Turkey has already purchased a large portion of its post-Ramadan requirement and demand for finished products is still poor.

Indeed, over the past few days, bulk exporters have responded by chasing prices lower to liquidate finished and partially-completed cargoes.

But the LME Scrap curve is demonstrating an aggresive Contango.

This could make a lot of sense if we are witnessing the beginnings of similar behaviour as to that we saw at the onset of the COVID crisis, whereby accumulators responded to cooling demand by dropping gate prices to reduce collection.

Should this be the case, inbound flow to yards will be constrained until there is a push up in bulk market prices to reincentivise further generation.

This is against a backdrop of othr potentially bullish market dynamics:

Egypt recently moved to further limit imports of semi-finished and finished products, which could stimulate far greater demand for scrap imports in competition with Turkish buyers.

And the UAE’s recently-announced export ban reduces flow from a key import sourvce for South Asian furnaces, which may well respond by sourcing more scrap from the Deep Sea and Containerized markets.

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