FUTURES WRAP: LME scrap contracts see gains on week, trading volumes increase

Near-term scrap futures contracts on the London Metal Exchange saw gains over the week to May 26, while the trading volumes increased on week.

Platts assessed the May contract up $3/mt on week to $483.50/mt on May 26. The June contract rose $14.75/mt to $465.75/mt, while the July contract increased $5/mt to $460/mt. The August contract gained $9/mt to $454.50/mt.

The backwardated structure over the May-June portion of the forward curve weakened on week, suggesting that futures traders continued to expect physical scrap prices to soften in the near-term but that expectation appeared less firm.

The contango over the June-July portion of the curve shifted into slight backwardation over the week, while the backwardation for the July-August portion of the forward curve softened slightly.

A sellside physical market participant voiced his surprise that LME June and July scrap contracts were trading in a contango above the current physical spot market and remained bearish about near-term pricing direction.

Spot prices for physical imports of premium heavy melting scrap 1/2 (80:20) dropped $8/mt week on week to $457/mt CFR Turkey on May 26, as the market heard fresh US-origin sales.

"If sellers have high stocks and have to sell, then below $460/mt CFR [for US-origin HMS 1/2 (80:20)] is possible, but after those sales, the material won't flow [into the yards]," a UK recycler said.

"The problem is not the scrap price, it's that there's not enough [finished steel] demand - the mills don't want to buy deepsea cargoes totaling 30,000 mt, they would rather buy smaller shortsea cargoes," a Turkish mill source said.

Weekly LME scrap futures trading volumes over the week to May 26 totaled 102,480 mt, up from 43,340 mt last week. The trading volumes were highest since the volumes recorded for week ending May 5 at 125,600 mt.

Near-term rebar futures contracts saw a mixed trend over the week to May 26.

Platts assessed the May contract decreased $1/mt on week to $800.50/mt. The June contract gained 50 cents/mt to $745/mt, while the July contract increased $2.50/mt to $742.50/mt on week to May 26. The August contract dropped $6/mt to $724.50/mt.

The sharp backwardation over the May-July portion of the forward curve softened slightly over the week, but the curve structure showed that futures traders continue to expect prices to fall in the near-term but the expectation might be less firm.

Turkish physical rebar export prices fell $2.50/mt on week to $762.50/mt FOB on May 26, as fresh deals for small volumes to Israel, Yemen, and Romania were heard during the week at slightly softened levels.

Most Marmara mills were expecting prices for rebar exports to start moving up following the fresh reported deals, while some market sources said fresh demand would be needed for any upward price momentum to appear.

Rebar futures weekly trading volumes in the week on the London Metal Exchange totaled 27,180 mt, up from 1,010 mt the previous week, recording the highest volumes since trading volumes of 41,830 mt recorded for week ending May 5.

The daily outright spread between Turkish export rebar and import scrap was assessed at $305.50/mt May 26, up $5.50/mt week on week.

Elsewhere, Indian scrap futures, which settles basis the Platts CFR Nhava Sheva shredded scrap assessment, traded 240 mt by May 26. The contract has seen a total volume of 5,280 mt traded since its launch in late July 2021.