CME EAF Contangoes may come under pressure
The spot market for deep sea scrap continued to push higher on Tuesday, with reports of new cargo purchases well above $260/mt CFR Turkey and both LME EAF forward curves shifting further into Backwardation. US steel futures trading was compratively quiet, dominated by buy-side interest in the early hours. But late news of blast furnaces restarts by three leading steelmakers could well send HRC futures into a tail spin tomorrow. And the development is likely not immediately supportive for CME Metal Magin futures.
Exchange Prices at 1630 GMT
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LME SCRAP & REBAR FUTURES
LME EAF Complex futures continued their shift into Backwardation on news of another round of higher-priced spot market bookings and on expectations that Chinese import demand would support international market finished product prices in the near term.
US HRC FUTURES
LME US HRC futures lead this segment higher in early morning trade on Tuesday, with Q3-20 being lifted above $540/st. CME US HRC also shifted higher, but by a lesser amount. And both curves presented more extreme Contangoes as a result. The front month continues to represent a fairly massive premium to spot market levels, which is surprisning considering Tuesday’s stand out news – that AK Steel, ArcelorMittal and US Steel are all intending to restart blast furnaces. This could well prove to be bearish news for HRC futures and CME Metal Margin futures.
US SCRAP FUTURES
CME Busheling futures turned bullish again on Tuesday with one screen buyer paying $10/t higher for longer-dated periods. Once again this curve is moving above the Cost of Carry and incentivising further generation.
As the front end of the LME Scrap and Rebar futures curves shifted higher on Tuesday it looked like paper traders looked to longer-dated periods for a hedge. The tail end of the LME Metal Margin futures curve sagged as a result.
CME Metal Margin futures have started to drop again, with Q1-21 bearing the brunt of Monday’s selling. The move was largely driven by an elongation in the CME Busheling futures Contango, rather than a reduction in confidence for finished products. However, today’s news of blast furnace restarts could change this dynamic.
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.
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