FUTURES WRAP: Backwardation strengthens on near-term LME scrap, rebar contracts

Most near-term scrap and rebar futures contracts on the London Metal Exchange saw losses over the week to Nov. 18, while trading volumes surged.

S&P Global Platts assessed the November contract up $2/mt on the week to $491.50/mt Nov. 18. The December contract increased $3/mt on the week to $467.50/mt, with January dropping $12.50/mt to $447.50/mt and February down $22/mt at $437.50/mt.

The backwardated structure for the November-December portion of the forward curve was largely stable on week, while the backwardation over the December-February portion of the forward curve strengthened significantly, suggesting that futures traders still expect that near-term scrap prices may soften.

Spot prices for physical imports of premium heavy melting scrap 1/2 (80:20) dipped $2/mt on the week to $496.50/mt CFR Turkey Nov. 18, as market sentiment turned negative ahead of the weekend.

The index had increased to $500/mt CFR Turkey Nov. 12, as HMS 1/2 (80:20) prices in US-origin cargoes for December shipment were pulled up by a high proportion of shred/bonus scrap. The Platts assessment has remained within the $494-$500/mt CFR range since Oct. 27.

"There are many sellers in the market, and maybe the market could go down next week -- the rebar and billet markets are no good at all," a Turkish mill source said. "January cargoes [are] being offered without any interest from the buyer side and there are not many December cargoes left."

"Mills are looking for $495/mt for premium HMS 1/2 80:20 if they need to buy and there is some availability as there are some unsold Baltic cargoes, which may cause mills to resist and wait for lower prices," a Turkish trading source said, estimating that mills require a maximum of five more December shipment cargoes.

Weekly LME scrap futures trading volumes over the week to Nov. 18 totaled 48,510 mt, a one-month high, and up from 31,320 mt recorded last week.

Most near-term rebar futures contracts also saw losses on the week, as physical Turkish export rebar prices started softening amid consistently weak demand.

Platts assessed the November contract stable on the week at $720.50/mt Nov. 18, while December fell $4.50/mt to $690/mt, January dropped $9/mt to $685.50/mt and February lost $9/mt to $680.50/mt.

The backwardated structure of the November-December portion of the forward curve continued to strengthen on the week, suggesting futures traders still expect near-term rebar prices to be less firm.

The flat structure of the December-to-January portion of the curve shifted into backwardation over the week, while the backwardation over January to February remained firm.

Turkish physical rebar export prices dropped $2.50/mt on the week to $727.50/mt FOB.

Most Turkish mills tried to maintain offers for Turkish rebar in the export market amid high energy and scrap costs, but a continuous lack of demand kept pressure on workable levels. The market also saw a lot of uncertainty as the Turkish lira depreciated sharply after the central bank's decision to cut interest rates for the third consecutive month on Nov. 18.

One Turkish trader noted that the depreciating lira was one factor affecting market sentiment, "but the main thing is demand. There is simply not enough demand."

Rebar futures weekly trading volumes this week on the London Metal Exchange totaled 14,360 mt, up sharply from 5,950 mt last week. This was the highest weekly volume in six weeks, since the seven days to Oct. 7.

The daily outright spread between Turkish export rebar and import scrap was assessed at $231/mt Nov. 18, down 50 cents/mt on the week.