ANALYSIS: US ferrous futures' forward curves higher across the board

New York — The rally in hot-rolled coil and ferrous raw materials futures has continued for the week with rising producer prices due to tight supply and consumer demand, especially from automakers.

The December/January 2021 contango on CME Group widened again to $140/st on Dec. 15, out another $50/st this week, with rising spot prices and January production sold out. The market looks to February as the next month with available tons. Even with the tightening of the January/February spread again this week, it is quite possible with rising producer prices that this spread will move into contango in the coming weeks similar to December/January. US mill HRC lead times once again increased on Dec. 9 to 9.8 weeks, an increase of 151% since mid-July.

"We have a firm offer from a producer for February tons at $1,000/st," a service center source said.

The Q1 contracts have remained active but with lead times increasing and some mills not being able to provide pricing volumes have started to increase in Q2 and positions have been actively rolled from Q3 2021 to Q4 2021. The February/March spread has tightened week over week to around $30/st trading out to $50/st this week, paying the bid/offer spread just to get the volume done.

"Looks like longs are being rolled to February and short in April/May as customers are being quoted over $1,000/st for February tons," a trader said.

The H1 2021/H2 2021 spread has also widened on the back of continued price increases for spot tons heard out to April for possibly above $1,000/st, that spread settled around $190/st on Dec. 14. The Q3/Q4 2021 spread has picked up as of recent trading $65/st, with 570 lots trading on CME Clearport on Dec. 15, as shorts were rolled further down the curve.

The futures contracts trade on CME Group and the London Metal exchange.

The February exchange HRC contract arb has quickly moved back to $2/st, CME over LME, from $60/st CME over LME last week, as some liquidity has returned to the LME contract. Platts' hot-rolled coil/hot-dipped galvanized coil premium spread weakened slightly this week to $145.25/st on Dec. 14, with hot-rolled prices rallying around $47.25/st on the week.

As of the Dec. 8 close, the last commitment of traders by the Commodity Futures Trading Commission (CFTC) showed another increase of 365 lots in short positions by managed money to 6,034 lots or 120,680 st.

"Wouldn't be shocked to see more short selling coming in anticipating more tons coming back online in the US since this price action has been mainly supply driven," a second trader said. "With no imports coming in it is hard to figure out when the turn will come."

CME Group's HDG premium contract open interest sits unchanged this week at 3,100 st.

Mill margins have continued to increase even with the continued strength in scrap prices, the Platts HRC/Busheling spread last hit $562.23/st on Dec. 14 and the Platts HRC/Shred hit $570.49/st on the same day.

Busheling forward prices continued their march higher as Q1 2021 was up another $20/lt to $445/lt, while H2 2020 has remained steady at $375/lt.

The busheling to shredded scrap differential tightened to $9.25/lt on Dec. 14, as the differential is likely to remain narrow to the point where the cheapness of primes, relative to the better quality material, can't be ignored.

The IODEX 62% Fe/US Shredded MW scrap ratio has continued to hold above 2 with the ratio hitting 2.38 on Dec. 14, as IODEX 62% Fe printed $154.50/mt, The Shredded index was $373.25/lt on the same day.

Platts' Shredded Midwest US scrap scoreboard finished 2020 at a record 5-4-3, wins-losses-ties, as price increases totaled about $107/lt, the highest since 2010.

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