Nearby LME Metal Margin Jumps

Cautious Scrap sentiment provides some relief to the EAF diff

Metal Margin futures exhibited the most interesting moves amongst the steel futures complex on Monday, which was a relatively quiet affair for most instruments. Lower iron ore and mainland China steel pricing undermined the recent bout of bullishness that has characterised paper trading – for most products. But LME Rebar futures continued to move higher, expanding LME Metal Margin futures at the front end of the curve to a generous differential. Meanwhile CME Metal Margin futures remain depressed.

Exchange Prices at 1630 GMT

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LME SCRAP & REBAR FUTURES

LME Rebar futures continued to push higher at the front end of the forward curve while LME Scrap prices remained subdued. This despite new physical scrap cargo bookings reported at sideways levels that are on a par with the front few months of the LME Scrap curve. The spot market rebar index addeed $4/mt on Monday – but the nearest few prompts still traded at a premium.

US HRC FUTURES

US HRC futures defied clear direction on Monday, selling slightly lower in the early morning before being bid higher into the close. For now, the Contango is holding. But an off-screen Q3-20 trade nearly $10/t lower than Friday’s repeated levels could be a sign that medium- to long-term sentiment is weakening.

US SCRAP FUTURES

CME Busheling futures were in a holding pattern as well, with time spread trading dominating the on screen action and few levels heard in the voice-brokered market. Physical market sentiment is hard to call so soon after the most recent monthly settlement and paper traders seem to be playing it safe for now.

MINI-MILL SPREADS

The front end of the LME Metal Margin futures curve surged higher after the weekend with nearby sentiment for rebar prices out performing that for the deep sea scrap market for the first time in a while.

Meanwhile CME Metal Margin futures remained depressed, clouded by recent deveopments relating to US crude steel production. These levels still look extremnely low relative to historical presentation. But, if mills compete hard for market share at all costs, they could well be feasible.

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, 15 June (Argus) — The continued absence of demand weighed on European hot-rolled coil (HRC) prices again today, as domestic mills fought for tonnage despite a lack of competitive import offers and rising costs.

Argus‘ benchmark daily northwest European HRC index slipped by €3.50/t today to €390/t ex-works, taking the month-to-date average to €397.93/t. The Italian index fell by €2.50/t to €377.25/t ex-works.

Some steelmakers said automotive supply-chain customers were beginning to take more contractual tonnages, but offtake was still just 15pc of normal. Mills’ direct sales to original equipment manufacturers were closer to 40pc of normal business volumes, evidencing the weakness of apparent demand in the automotive supply chain

The German market has effectively been on holiday for the past two or three weeks given the lack of demand, with one trader suggesting “it’s like it [the market] does not exist anymore”.

Many external sellers have turned away from Europe as they could get firmer prices elsewhere, and because of the reviewed safeguard and anti-dumping and anti-subsidy investigations.

There was talk of one north European seller offering pickled and oiled HRC, which typically trades at a premium of around €25/t to dry material, at €375/t ex-works. Some also said there were competitive northern offers into Italy, as low as €380/t delivered, as well as the Middle East and north Africa. It was unclear whether or not the Italian offers were for higher-grade material with more extras on top of the base price.

An Italian mill was asking for higher prices for new rollings, but was still open to discounting its plentiful stocks, which were amassed as it did not lower output significantly over the past three months. In late April-early May it was understood to have cut production by 20pc, and there were reports that it was undertaking maintenance work. Market talk suggested there will be an extended stop over the summer at its HRC line, but its output has so far surpassed demand. Today it was heard to offer €390-400/t ex-works to Germany and Italy for new orders, but for the north some market participants said it would need to offer at €390/t delivered to attract interest. Another Italian producer was heard to have finalised a deal in the south of the country at €370/t delivered.

At the same time, processed sheet prices were on the decline, with cut to length and slit coils at €450-460/t delivered, creating liquidity problems for service centres. Order intake since mid-May has slowed significantly so deliveries over June and July could be below May levels. Some estimated that SSCs will not be placing any sizeable orders to mills until at least September. A mill was pushing processed material without a premium for the processing, whereas under normal conditions it seeks €10-20/t extra.

There was concern about the direction of prices, given that the Italian government has so far not injected any stimulus into the economy to revive demand, and as some automotive producers are yet to restart. Demand for cars is dire in Europe. In France, for example, original engine manufacturers have amassed huge stocks. Many other steel end-users in Italy were still running at 50-60pc capacity, although some had gone back up to 80pc, but were still below usual volumes. Some white goods producers were managing to increase production and to compensate for the stops over March-April, but they will not be undertaking maintenance over August.

ArcelorMittal Ilva has restarted some of its production lines after strikes last week brought them to a halt, although it is still producing under 7,500t/day.

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:

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