U.S. ferrous futures curve continues to ease as imports rise
Hot-rolled US futures rose slightly in the week ended July 20, as spot prices remained just below record highs with import bids rising. Bushel scrap futures plunged over the week as the 2021 contango widened.
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Demand remained stable as factories and service centers made offers and were in no rush to sell limited volumes for August and September.
Trading volumes fell slightly week over week, according to data from CME Group. Position turnover was moderate during the week ending July 20 as new hedges entered the market from September to December to combat rising spot prices. The market again saw new buys come into the market for H1 2022 contracts as spreads eased.
The hot-rolled coil spot market recently saw spot bids of $ 1,875 / st for August production. An import transaction was heard at $ 1,720 / st DDP Houston for August production from a Mexican plant. While import offers were heard from a Canadian factory at $ 1,580 DDP Great Lakes for an October / November arrival. Cold-rolled coils tradable values remain firm up to $ 2,080 / st for October domestic production.
The Platts TSI US HRC Index hit a record high of $ 1,839.25 / st on July 19 and fell to $ 1,829.75 / st on July 20, with prices rising 317% since August 2020, when the recovery has started.
Imports continue to increase due to domestic blackouts
The July / August spread traded in contango to settle at $ 32 / st on July 20.
The structure of the forward curve continued to ease slightly over the week but the offsets remained. The July / December offset narrowed to $ 128 / st on July 20, from $ 331 / st on June 1, as most of August’s production ran out, pushing prices lower on the curve with limited availability even for national production for September and Canadian for October.
Rollover of hedges continued along the curve in September and the fourth quarter as the July / October spread stood at a shift of $ 64 / st. Since prices have fallen from recent highs, it will be difficult for the market to cover imports in the future, unless materials stay close to ports, as the curve has maintained the offset structure until ‘in the fourth quarter. Fresh purchases have emerged, mainly throughout 2022, although imports are expected to remain strong in the fourth quarter.
The December contract was up $ 46 / st over the week to $ 1,652 / st on July 20 and up $ 250 / st from June 20. The offset of the Q3 / Q4 spread eased slightly to around $ 101 / st, from around $ 216 / st on June 15th.
Contracts for 2022 continued to record good trading volumes although the first quarter of 2022 increased from $ 50 / st to $ 1,514 / st on July 20 – with 953 lots traded in 2022 during the week ended on July 20. July.
The offset of the curve eased due to long delivery times from domestic factories, but increased imports, with significant shipment expected from Turkey in the fourth quarter to help make up for tonnes lost due to breakdowns. Market sources cited the surge in imports as the reasoning behind cautious buying in the spot market.
Import delays helped flatten the curve in April and May, but this opportunity remains tight for Q4, with spreads keeping the offset and lead times now pushing through year end. Many participants are less willing to reserve tons.
Production times for HRCs at US factories remained unchanged at 8.5 weeks on July 14, well above the 10-year average of 4.8 weeks.
The July / Q4 offset narrowed to around $ 95 / st with new hedging further down the curve. Most of the top volumes were positioned in the fourth quarter and with the offsets narrowing over the week, short hedges seemed to benefit, along with new buys on 2022 contracts.
Rising costs of transportation from Houston, particularly by truck, have made imports into the Midwest even more unattractive. Yet traders were seeking to fill the demand gap resulting from the recent closures by importing shipments from Turkey. Import deals have been heard in the range of $ 1,520 / st to $ 1,610 / st DDP Houston from Vietnam and Serbia for a November arrival through a service center. Worsening global logistics problems and arrival delays were also cited.
According to US Department of Commerce enforcement and compliance licensing data for June, hot-rolled sheet imports are expected to reach 263,524 mt. Imports from Canada appear to be around 119,369 mt, down 8,743 mt on month, while imports from South Korea stand at 51,070 mt. Imports from South Korea generally feed the US Gulf Coast. Imports from Turkey appear to increase from 7,440 mt to 31,002 mt.
As futures continue to recover, the third month spot / LME spread slipped into a slight contango on June 24, which lasts until July 6 when the spread flipped again, the offsets eased in the last part of the curve but remained intact. The fundamentals have not changed and spot prices have continued to rise.
At the close of July 13, the latest Commitment of Traders report from the Commodity Futures Trading Commission showed that short positions in managed money had increased from 747 lots to 13,223 lots and that spread positions had decreased from 90 lots to 1,461 lots. At the same time, trading short positions increased from 264 lots to 11,583 lots and swap brokers increased long positions from 306 lots to 2,226 lots.
Electric arc furnace plant margins in the Midwest continued to rise during the week of July 19, as blue-chip scrap prices held steady and HRC prices hit new records. Platts HRC / MW bushel spread rallying at $ 1,258.89 / st and Platts HRC / shredded spread increased to $ 1,390.37 / st, margins have increased 273% since the start of the fourth quarter 2020.
Main scrap supply remains limited
Midwest bushel scrap futures traded lower during the week ended July 20, as the 2021 contango widened after the July contract expired. The August / December spread stood at $ 42 / lt in contango, while December traded at $ 692 / lt on the same day.
The widening of the arbitrage between HRC and bushel scrap has attracted buyers, especially over short HRC Q3-Q4 covers.
The December contract ended with a premium of $ 42 / l until July 20, as the market envisioned primary scrap consumption from the additional capacity of electric arc furnaces and strong demand from factories. . The spot price for Platts bushel scrap delivered to the Midwest was unchanged at $ 650 / lt on July 20.
The spread between the bushel and shredded scrap remained stable at $ 147.25 / liter during the week ended July 20, with prices for prime Midwestern scrap metal being firm during the week.
Shredded scrap prices in the Midwest held steady at $ 502.75 / L on the same day and held that level as obsolete grades traded sideways for July.
The tightening of the market was supported by shutdowns in the auto sector due to shortages of semiconductor chips. Logistics problems on the trucking side are starting to ease, market sources said.
The U.S. Southern bushel scrap price edged down to $ 647.50 / liter on July 13 and has held steady since, while Southern woodchip prices have held steady at $ 505 / liter. .
The Platts HRC EXW Indiana and Shredded Scrap Delivered Midwest index futures are traded on CME Clearport and CME Globex.