LME Aug scrap futures volumes hit 3-month high as hedging appetite grows in volatile market

  • Tuesday, September 08, 2020
  • Source:ferro-alloys.com

  • Keywords:LME,scrap
[Fellow]LME Aug scrap futures volumes hit 3-month high as hedging appetite grows in volatile market

[ferro-alloys.com]Monthly ferrous scrap futures trading volumes on the London Metal Exchange reached a three-month high in August, totalling 235,970/mt, with hedging appetite growing in a volatile physical market over 2020.

August's total was the highest monthly scrap volume since May, when monthly volumes reached a 20-month high of 557,250 mt.

Scrap volumes traded over January-August 2020 totaled 3.51 million mt, the highest volume over the first eight months of a year since the launch of the contract in late 2015. The next highest total was 3.15 million mt in January-August 2018.

The scrap and rebar forward curves on the London Metal Exchange both saw sharp gains over the week to Sept. 3.

The September LME scrap futures contract was up $18/mt on week, to $312/mt on Sept. 3, while the October contract rose by $15/mt over the week to $306.50/mt and the November contract increased $13/mt to $302.50/mt.

The sharp gains suggest firm positive sentiment in the short-term, following higher scrap bookings in the physical market, but the backwardated structure of the scrap forward curve strengthened on the week.

"It's very difficult to say [if the physical market is close to a peak]. While the market expected an uptick, it has gone up further than [expected]," a futures trader said. "Today the scrap futures market seems to be offered below valuation suggesting some resistance, but we continue to see some physical strength," the trader added, noting the September scrap contract had a bid-offer spread of $305-306/mt.

Spot prices for physical imports of premium heavy melting scrap 1/2 (80:20) had increased $11/mt week on week to $299.50/mt CFR Turkey on Sept. 3.

"The whole market revolves around two things: Chinese finished steel imports and Turkey. As long as the Turks have good domestic demand, scrap prices should be strong. And China being at a very high level makes for a good opportunity for Turkish rebar mills in Asia," a trading source told Platts. "I strongly feel that scrap prices in Turkey are not going to go down any time soon."

Scrap futures trading volumes over the week to Sept. 3 sat at 83,510 mt, up slightly from 82,950 mt the previous week, to reach the highest weekly volume since late May.

Rebar futures contracts on the LME also saw sharp gains on the week, with the September contract up $11/mt to $464.50/mt on Sept. 3 and the October contract up by $15/mt to $466.50/mt, creating a prompt contango structure and highlighting some expectations of near-term strength into October amid recent news of large volume export rebar sales into Hong Kong.

The November rebar contract was assessed at $466/mt, up $19/mt on week, while the December contract sat at $461.50/mt on Sept. 3. The rebar forward curve formed a bell-shaped structure with the near-term contango followed by a backwardation over October-December.

A trader said that the domestic market was already paying the equivalent of $460-$465/mt FOB this week, but exports were resistant. He believed, however, that achieving $460-$465/mt FOB was just "a matter of time" in the strengthening price environment.

However, the sharp weakening of the Turkish lira on Sept. 4 has adjusted domestic Turkish rebar prices downwards in US dollar terms, with the lira trading at 7.45503 as of 2.10 pm London time on Sept. 4, compared to 7.33580 one week earlier on Aug. 28.

Rebar futures weekly trading volumes this week on the London Metal Exchange totaled 14,690 mt, up from 8,720 mt recorded last week, to reach the highest weekly volume since early June.

Platts' assessment of Turkish exported rebar was up $11/mt over the week to $455/mt FOB Turkey Sept. 3. The Turkish longs melting margin -- the spread between Turkish exported rebar and import scrap – was unchanged week on week at $155.50/mt on Sept. 3.

(S&P Global Platts)

 

  • [Editor:王可]

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