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FUTURES WRAP: LME scrap contracts see gains, near-term backwardation shifts into soft contango

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FUTURES WRAP: LME scrap contracts see gains, near-term backwardation shifts into soft contango

Highlights

Weekly LME scrap future volumes drop

LME rebar contracts also see gains on week

  • Author
  • Rabia Arif    Viral Shah
  • Editor
  • Jonathan Fox
  • Commodity
  • Metals

Near-term scrap futures contracts on the London Metal Exchange saw gains over the week to Sept. 22, while weekly trading volumes decreased.

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Platts, part of S&P Global Commodity Insights, assessed the September contract up $2.50/mt week on week at $360.50/mt, while the October contract jumped $14/mt to $361/mt. The November contract gained $8/mt to $360/mt, while the December contract rose $3.50/mt week on week to $358.50/mt.

The backwardation over the September-October portion of the curve shifted into a soft contango, suggesting some futures traders expect scrap prices to strengthen slightly in the physical market in the near term.

The October-December portion of the forward curve shifted into backwardation, suggesting expectations of slightly softening prices into the fourth quarter.

Spot prices for physical imports of premium heavy melting scrap 1/2 (80:20) increased $1/mt week on week to $350/mt CFR Turkey on Sept. 22, following a fresh Baltic-origin deal. Turkish mills were aiming for lower levels for scrap imports, while sellers sought higher prices.

Despite the relatively low volume of domestic finished steel sales and continued soft demand in Turkey, deepsea recyclers pushed for sharply higher CFR Turkey prices, amid anticipation of some Turkish mill restocking, and alternative bulk cargo demand to Asia and Latin America.

"All we can say with any amount of certitude is that the downtrend is most likely over, [but] we can't yet predict a stronger market," one EU recycler said.

Weekly LME scrap futures trading volumes over the week to Sept. 22 totaled 53,110 mt, down from 100,470 mt for the week ended Sept. 15.

Near-term rebar futures contracts also saw strong gains over the week to Sept. 22.

Platts assessed the September contract up $8/mt week on week at $669.50/mt, while the October contract jumped $24.50/mt to $670/mt. The November contract rose $14.50/mt to $661.50/mt, while the December contract increased $17/mt week on week to $660.50/mt.

The near-term backwardation over the September-October portion of the forward curve shifted into a soft contango, suggesting that futures traders expect prices in the physical market to remain firm in the near term.

The backwardation over the October-December portion of the forward curve strengthened, suggesting expectations of a downward price trend for rebar in the physical market into the fourth quarter, albeit still at elevated levels.

Turkish physical rebar export prices gained $5/mt week on week to $675/mt FOB on Sept. 22, as Turkish mills raised offers while scrap supply tightened. Sources also reported some small volume sales to Israel and Yemen.

Some domestic rebar sales were also heard, amid restocking prior to an expected weakening in the Turkish lira following the Turkish central bank's decision to cut benchmark interest rates by 100 basis points to 12% on Sept. 22, despite inflation running at a 24-year high.

One Iskenderun mill source sold 2,000-3,000 mt at $700/mt ex-works Sept. 21. Sources also reported domestic rebar sales totaling around 40,000 mt at $685-$690/mt ex-works.

Rebar futures weekly trading volumes in the week on the London Metal Exchange totaled 25,460 mt, up from 16,470 mt in the week ending Sept. 15.

The daily outright spread between Turkish export rebar and import scrap was assessed at $325/mt Sept. 22, up $4/mt week on week.

Elsewhere, the LME Indian shredded scrap contract, which settles basis the Platts CFR Nhava Sheva shredded scrap assessment, traded 150 mt on week to Sept. 15. The contract has seen a total volume of 7,410 mt traded since its launch in late July 2021.