Steel Futures drift lower

The iron ore rout has disarmed forward price bullishness

With iron ore futures drifting lower again on Thursday there was no clear direction for Steel Futures, with LME EAF futures softening slightly while US HRC futures found some longer-dated buy-side support. The impact on Metal Margin futures is seemingly one of normalisation, with forward implied EAF conversion margins in the USA dragging themselves back to profit-making levels while the LME complex has found support above $150/mt. But, despite the move lower, paper traders still look attractive compared to the spot market.

Exchange Prices at 1630 GMT

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LME EAF Complex futures continued to sag on Thursday despite reports circulating of fresh cargo purchases at sideways to slightly higher levels. Since the forward curve continues to trade at a premium to spot, there are still plenty of opportunities for inventory hedging. And further iron ore weakness is undermining medium- to long-term buy-side interest.


US HRC Futures are shifting back into a clear long-dated Contango with most buying interest concentrated in Q4-20 and beyond. Still, the Jun-20 vs Jul-20 time spread is glaring, priced at a significant premium to the Cost of Carry. Paper traders continue to shuffle around the recent bout of Calendar Spreads with no apparent stand-out conviction on price direction.


With the front end froth in CME Busheling futures having dissipated over the past few days, this curve is also shifting further into Contango. Mini-mills are dominating US steel production, so the long-term demand picture for prime scrap grades looks strong. But the outlook from paper traders is that finished product spot prices will have to continue rising in order to facilitate further gains for Busheling.


LME Metal Margin futures sold slightly lower on Thursday, with arbitrageurs taking profit. But the curve still showed support for profit-making levels.

CME Metal Margin futures continue to rise, benefiting from reduced short-term Busheling fervour and the gradual extension in the US HRC futures forward curve. Although presently-trading levels are still low compared to historical norms, they should facilitate profitable EAF production.


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, 4 June (Argus) — The daily Italian index edged down by €1/t today to €379.25/t ex-works, while the import assessment jumped by €22.50/t to €392.5/t cif on firmer offers.

Increased import prices were underpinned by a lack of offers, as the Asia-Pacific region continued to soak up cargoes from Turkey and the Black Sea, displacing material previously bound for Europe. Turkey was heard offering to Europe at the equivalent of €400-410/t cfr, despite concluding sales to China and Vietnam at about $400/t fob and slightly less.

But the safeguard revision and potential dumping measures meant Turkish mills were significantly more relaxed into Europe. Indian material was also absent, while a Russian seller was offering at increased prices to Turkey.

The gap between Italian import and domestic prices was unsustainable, and even with demand at low levels in Europe, mills will likely use the reduced import penetration to try and increase prices. In addition, Turkish re-rollers were planning to increase prices depending on the outcome of domestic hot-rolled coil (HRC) negotiations, which could see European buyers turn more to local suppliers for cold-rolled coil (CRC) and galvanised and support rolled steel prices.

In the north, buyers aimed to secure contractual tonnages at spot prices, which are loss-making for producers, and mills were offering at a slight increase to the first half in the hope of rolling over. Germany announced its €130bn stimulus programme that, much to the dismay of market participants, had no incentives to boost consumer demand for combustion engine vehicles. Few electric vehicles are actually produced by German companies domestically.

Argus‘ benchmark daily northwest Europe HRC index fell by €1.75/t to €398.50/t ex-works, taking the month-to-date average to €401.81/t.

UK HRC prices were stable at £385/t ddp West Midlands. Some larger buyers claimed to have secured cargoes at £380/t ddp, but this could not be confirmed. One large buyer reportedly booked imported Russian tonnage at £357/t, but it was not clear whether this was cfr or delivered. Most import offers appeared to be above domestic European offers, with hungry local mills now among the cheapest in the world.

Activity was starting to pick up a touch and there was less concern about payments.


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You can find explanations for many of these terms in The Board Report glossary.

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