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US Futures Sell Off on BF-Restart News

Pressure renews on CME Metal Margin futures as paper trade anticipates battle for market share

US EAF Complex futures dropped from yesterday’s highs as the paper market digested news of blast furnace restarts on Wednesday. And CME Metal Margin futures were battered lower again with paper traders anticipating an unpleasent fight for market share. Nonetheless the forward curves for both underlying instruments remained in Contango while LME Scrap and Rebar futures drifted further into Backwardation. A quiet day on the physical market has some traders questioning whether deep sea scrap prices have reached a ceiling.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

LME Scrap and Rebar futures trading was fairly quiet on Wednesday, when the spot market index caught up with the physical market – yesterday’s deals were reported too late to be included. This now puts the front end of the forward curve on par with prices for prompt deliveries, indicating some uncertainty as to whether prices will move higher. Yet Turkish mills have pushed rebar prices higher with renewed confidence after recent export bookings.

US HRC FUTURES

US HRC futures softened from their recent highs on reports that several US steelmakers intend to restart blast furnaces. This news has over shadowed some signals that finished products demand is recovering, with concerns that US mills are more focussed on capturing market share than profitability.

US SCRAP FUTURES

CME Busheling futures sustained Contango despite lower levels trading for US HRC. For now, paper market traders are anticipating that EAF steelmakers will fight hard to sustain their freshly-won increased market share and demand for prime scrap grades will remain healthy.

MINI-MILL SPREADS

LME Metal Margin futures traded sideways on Wednesday, although the curves for both underlying instruments softened. Despite the Backwardation, futures trade in these markets indicates good prospects for Turkish EAFs.

CME Metal Margin futures continue to drift lower, with Tuesday’s late news of blast furnace restarts piling on more sell-side pressure to this curve, which remains well below historically-observed levels.

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, 10 June (Argus) — Some traders have started taking positions for the southern European market in the expectation that rising costs and higher prices in other markets will see European mills raise prices too.

The daily Italian index edged up by €1/t to €380.25/t ex-works today. But the northwest European hot-rolled coil (HRC) market shrugged off the green shoots seen elsewhere, with Argus‘ daily index slipping by €1/t to €397/t ex-works — this took the month-to-date average to €399.84/t.

A trader offered to Spain from Turkey at €415/t cif, but safeguard restrictions put the buyer off from purchasing, and the price was €10/t too high. Market participants said the workable level today for Spain was €400-405/t cif, which would indicate an increase in buyer expectations. Liquidity, and expectations, seemed firmer in Iberia and Italy than in the north. One service centre suggested its volumes had doubled from three weeks ago, and that customers were agreeing to rollovers for contract supply in the second half of the year.

Meanwhile, a trader said it had received bids at under €405/t cif Italy for small volumes of HRC. Market participants deemed the level unworkable for mid-sized or large orders, and buyers were heard bidding below €400/t cif this week.

A level of €405/t cif would only be workable if local mills increase prices to €410/t ex-works, a source said. But a mid-sized positional lot was heard booked today for Italy at this price. Turkish mills have increased prices as of late, amid higher scrap and iron ore costs, as well as domestic demand, despite partially losing access to the EU market.

In the local Italian market, €390-400/t delivered was increasingly difficult to find from two mills, although a third remained below this level. Today it was heard to have made an offer to a buyer in the south of the country at €380/t delivered. It is also reportedly experiencing issues with hot-dipped galvanised (HDG) and cold-rolled coil (CRC) orders amid worker strikes.

Nevertheless, increases in Asia and Turkey boosted sentiment for Europe, and many expect domestic mills to raise prices soon, but demand is not yet rising, with finished product prices still on the decline and steel service centre (SSC) margins under pressure.

Some expect a €10-20/t rise could be in sight for mills in the next week, and one mill said it is already trying to raise prices amid increased raw material costs, but was slow in achieving them. Another Italian mill was heard to be on the verge of announcing an increase too.

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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