Steel Futures Lethargic, Shrug Off Iron Ore Rally

5% jump in the spot price for ore fails to stimulate a discernable gains in associated markets

Monday trading began with spot iron ore prices surging out of the gates, following news that more than 10% of Vale’s output in Brazil has been shuttered due to the spread of COVID. Considering the news, steel futures were surprisignly lethargic, with the front-end LME Scrap Contango falling to its lowest level in several weeks while the longer-dated term structure for both LME EAF futures shifted further into Backwardation. Meanwhile far-dated US HRC periods were well bid and dragged Busheling futures higher.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

The front end of the LME Scrap and Rebar futures curves pushed higher on Monday, in line with still firm physical market sentiment and supported by the rally in CFR China Iron Ore futures. High-level analysis (which is code for light touch) now suggests that Turkish EAFs are opertaing at a cost advantage of nearly 15% over Chinese Blast Furnaces and paper traders are banking on repeats of last week’s bulk purhcases of ex-Turkey rebar. But this front end concentration also pushed the balance of the curve into Backwardation.

US HRC FUTURES

The US HRC futures Contango continued to pronate on Monday with today’s trading focus on Q1-21 prompts and time spreads thereof. Great news for inventory hedgers, with the front end of the curve bearing plentiful fruit above the cost of carry. With mills keen to secure orders for spot tons, service centers have an excellent opportunity.

US SCRAP FUTURES

CME Busheling futures continued to be dragged higher by the US HRC futures curve, with one notable exception – paper traders are betting on a loosening in the spply and demand balance in August.

MINI-MILL SPREADS

LME Metal Margin futures seem ot have bedded in nicely back at profit-making levels (famous alst words), with the curve having traded in this territory for over a week. Jul-20 particularyl caught a bid on news that Turkish exporters sold several bulk cargoes comprising finished products to Asian buyers last week.

And yet CME Metal Margin futures continue to suffer, with plenty of selling below likely profit-making levels as the CME Busheling futures curve continues to keep pace with HRC.

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, 8 June (Argus) — Some hot-rolled coil (HRC) buyers in Germany are targeting lower prices than most Italian customers, despite a widespread expectation that mills will soon be increasing offers.

Import penetration could be limited in the coming months, owing to the revised safeguard quotas and low domestic prices, which could see European mills raise prices. Mills also need to try and regain profitability given rising costs.

Some suggest India and Russia could fully utilise their quotas by the end of July, while Turkey is hindered by a reduced allocation, as well as investigations.

But buyers continued to push for lower prices, despite the absence of other viable options. Material from North Africa was recently offered into Italy and Germany, and although it did not result in a booking, buyers were looking for lower prices in the latter. May closed with steel service centres and other buyers at an average decrease of 40pc in deliveries.

Demand is beginning to show slight signs of strengthening in Italy — there were small number of inquiries for cold-rolled and hot-dipped material today, as issues arose with a major steelmaker not being able to guarantee and delaying deliveries. Some of these have been supplied with cold-rolled coil from Asia, booked at €438-440/t cfr.

The Argus daily Italian HRC index edged up by €0.50/t to €379.25/t ex-works, while the northwest index dropped by the same amount to €398/t.

GLOSSARY

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:

Instruments:

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