US ferrous futures hit record highs as spot offers continue to rise

US hot-rolled coil futures traded up to record highs and backwardations eased as the Platts spot index made a fresh record high on the same day. Busheling scrap futures continued to point at lower prices for the September buy week.

Demand has remained steady as mills have raised spot offers with an integrated offering $2,000/st. Consumers were willing to pay the price for spot tons as import arrival times are pushing into the first quarter. Some mills are still in no rush to sell any remaining production unless they are to receive higher bids.

Trading volumes were down 17% week on week, according to CME Group data, but volumes returned on August month-end as new highs were recorded. The rolling of positions continued as some positions were rolled further into 2021 and into Q1 2022 to combat rising spot prices and as customers looked to hedge tons against the planned mill outages. The market again saw some fresh buying coming in for the Q4 2021 contracts.

"Aggressive fresh consumer buying coming in at higher levels," a trader said

The hot-rolled coil spot market has seen recent transactions at $1,940/st for October production, with offers at $1,960 in the South and $1,990/st ex-works from a West Coast mill for November production. Cold-rolled coil tradable values were up to $2,220/st for October domestic production.

The Platts TSI US HRC index hit a record high of $1,942.25/st on Aug. 31, with prices now up by 342% since August 2020 when the recovery began.

Mills continue to raise offers testing new levels

The September/October spread loosened as the September contract become top step. The market continues to see rising spot offers ahead of planned mill outages in September through November. It settled at $45/st backwardation on Aug. 31 as spot prices remain higher for longer with record highs throughout the curve.

The structure of the forward curve loosened during the week, prices rallied to new highs across the entire curve. The September/December backwardation eased to $220/st as the December contract saw increased flows and rolling of positions during the week, as September production has sold out, pushing prices further down the curve higher with limited availability even for October domestic production.

The rolling of hedges moved further into the fourth quarter. The September/October spread eased, trading around a $45/st backwardation, as October/December positions were rolled around $175/st as that spread eased with import lead times pushing further into the quarter. The Q4 2021/Q1 2022 spread tightened to around $200/st backwardation. As fresh buying came into the curve again mainly in Q4 as imports are expected to remain strong into the quarter and in Q1 2022.

Market sources are still expecting tight conditions now through November, with planned mill maintenance. Some outages are now extending out longer than expected.

Some service center sources also previously indicated that December futures prices look "cheap" considering market conditions.

The December contract hit a record high of $1,730/st on Aug. 31, up $109/st during the previous week. The contract is now up $120/st from the start of the third quarter. The September/Q4 spread backwardation eased to around $127/st, as producer offers remained firm.

Contracts for 2022 saw steady volumes during the week, as Q1 2022 moved higher by $60/st, trading around $1,605/st on Aug. 31, with 1,107 lots trading in the first quarter during the week ended Aug. 25.

The front part of the curve eased on the back of long domestic mill delivery lead times as increasing imports helped keep backwardations intact in the latter part of the year and into 2022, as some service center inventories have improved closer to historic levels but still remain lean.

With rising imports heading into the fourth quarter and lead times pushing into year's end many participants are less willing to book tons at the very end of the year. Even as it will be slightly easier to hedge imports going forward with futures sitting at new record highs.

US mill HRC lead times dipped again slightly to eight weeks on Aug. 25, well above the 10-year average of 4.8 weeks.

Logistics continue to be challenging but still, traders were looking to fill the demand gap from recent and planned outages by importing cargoes from Turkey, Vietnam and Korea. Import offers were heard this week at $1,500/st DDP Houston from Vietnam for December arrival and at $1,520/st DDP Houston from Russia for January arrival.

According to the US Census Bureau, July preliminary data shows imports tracking around 225,429 mt. Imports from Canada are seen at 106,939 mt, while imports from South Korea are expected to be 55,997 mt. Imports from South Korea usually feed the US Gulf Coast. Imports from Turkey look to be 37,754 mt.

As futures continue to rally, the Platts HRC spot/third-month futures spread on the London Metal Exchange has eased during this trading week. Fundamentals have not changed as backwardations remain throughout the curve.

As of the Aug. 24 close, the last Commitment of Traders report showed short positions by managed money increased by 984 lots to 16,436 lots and spread positions decreased by 422 lots to 501 lots. At the same time, commercial short positions increased by 1,067 lots to 11,937 lots and swap dealers increased long positions by 394 lots to 3,729 lots.

Electric arc furnace mill margins in the Midwest rose again during the week ended Aug. 31, as prime scrap prices remained steady and with HRC prices reaching new record highs. The Platts HRC/MW busheling spread was at $1,357.89/st and the Platts HRC/shredded spread also rose to $1,509.23/st. Margins have risen 103% since the start of 2021.

All scrap grades under pressure in next buy week

Midwest busheling scrap futures eased again during the week ended Aug. 31, as the 2021 curve continued to narrow, the September/December spread settled at a $10/lt backwardation, as the Q4 strip traded down to $615/lt.

The widening arbitrage between HRC and busheling scrap attracted buying, especially versus Q4 2021/Calendar 2022 HRC short hedges and verse shredded scrap.

The December contract settled at a $35/lt backwardation to spot on Aug. 31, as the market looked at possible falling prime scrap consumption this fall from planned mill outages and maintenance stretching further into the fourth quarter. December prices have fallen from a high of $720/lt hit on June 22, as some recyclers were able to hedge tons above the $680/lt level, market sources have said. The prime scrap has market has started to loosen even with the slow down in the auto sector due to chip shortages. Market participants have noted the increased availability of prime. They have also the melting rate of prime over shredded supporting the spread differential. The Platts busheling scrap delivered Midwest spot price was unchanged at $650/lt on Aug. 31.

The busheling-to-shredded scrap differential expanded during the week to $169.50/lt as of Aug. 31, as Midwest prime scrap prices were steady during the week but mini-mills look at evolving technologies to better utilize obsolete scrap due to supply availability of shredded scrap. Market sources cited weakening prime scrap looking ahead to the September buy week on the availability of material and expected mill outages in September.

"Tradable value of down $40/lt to $50/lt on prime scrap from August for September delivery," a supplier said. While prices for obsolete grades in the Midwest look down around $20/lt from August.

Midwest shredded scrap prices dipped slightly to $480.50/lt on the same day, down around $20/lt from the July buy-week.

Southern busheling scrap prices were steady at $637/lt on Aug. 31, as were regional shredded prices at $488/lt, both were expected to see some pressure during the September buy-week.

Both Platts HRC EXW Indiana and Shredded Scrap Delivered Midwest index futures trade on CME Clearport and CME Globex.