Unclear spot direction leads to more pronounced Contango

Steel Futures remain bid at a premium to spot before the weekend but confidence is less notable

Steel futures tended further towards Contango on Friday when the physical market failed to renew its vigour on the back of lower Chinese onshore prices. LME Rebar futures were the exception, with news of fresh bulk Turkish export cargoes purchased by consumers in the Far East helping buyers to cross bid/offers all along the curve. And US HRC futures edged higher as well on renewed optimism that US steel consumption will improve more consistently in the weeks and months ahead.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

LME Scrap futures continued to edge lower on Friday with the curve shape trending towards Contango, even though the physical market has climbed gradually higher through the week. News of fresh rebar export bookings bound for the Far East sustained more bullish sentiment for LME Rebr futures, and this curve held its ground.

US HRC FUTURES

Meanwhile US HRC futures kept edging higher on Friday, with the Jun-20 vs Jul-20 time spread looking particualrly extreme. But buy-side interest has pushed farther forward than these opening few prompts, with more action reported for Q3-20 and beyond. A great time for those tempted by physical Special Buying Opportunities to load up and hedge their exposure.

US SCRAP FUTURES

The pressure of gradually-higher US HRC futures pulled far-dated CME Busheling futures higher as well on Friday, with the bigger picture longterm supply and demand picture coming to the fore. The US prime scrap pool isn’t getting any bigger and will likely be tested if EAF steelmaking capacity expansion plans move ahead later this year. And, in the meantime, it’s the mini-mills that are keeping America’s rolling mills churning.

MINI-MILL SPREADS

News of fresh export bookings bound for East Asia rekindled hopes that rebar prices will continue to rise and faciliate improved profitability for Turkish mini-mills on Friday. Some periods along the LME Metal Margin futures curve traded as high as $160/mt, suggesting paper traders believe this scenario could be sustained.

But US Metal Margin futures sagged, with a stretch in the CME Busheling futures Contango out pacing gains posted by US HRC futures.

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.

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.

GLOSSARY

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

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