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FUTURES WRAP: LME scrap, rebar contracts jump on week, near term contango strengthens

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FUTURES WRAP: LME scrap, rebar contracts jump on week, near term contango strengthens

Highlights

Future traders expect strengthening physical prices in near-term

Weekly trading volumes dip on week

Scrap and rebar futures contracts on the London Metal Exchange saw further gains over the week to Oct. 14, on expectations of strengthening physical prices in the near-term.

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S&P Global Platts assessed the October contract up $12/mt on the week to $478/mt on Oct. 14. The November contract jumped $18.50/mt on the week to $498/mt, and the December contract increased $15/mt on the week to $493/mt. The January contract rose $9.50/mt on the week to $485/mt.

The contango structure for the October-November portion of the forward curve strengthened on the week, suggesting that futures traders continue to expect scrap prices in the physical market to increase further in the near term.

The backwardation structure for the November-January portion of the curve also strengthened, albeit at elevated levels, suggesting some near-term uncertainty into how rising energy costs may affect scrap demand into the winter period.

Spot prices for physical imports of premium heavy melting scrap 1/2 (80:20) jumped $35/mt on the week to $490/mt CFR Turkey on Oct. 14, as the market reported a flurry of bookings amid steadily rising prices, with both buyers and sellers expecting prices to reach $500/mt CFR level in the near-term.

"The market is like a scary movie -- in my opinion it is not something sustainable, and it's going up like it's out of control," a Turkish mill source said. "Considering the [price] trend and acceleration, I am expecting [$500/mt CFR] next week, if not earlier."

Weekly LME scrap futures trading volumes over the week to Oct. 14 totaled 37,090 mt, down from 92,320 mt recorded last week.

For near-term rebar futures, the contango structure of the October-November portion of the forward curve also strengthened significantly on the week, in line with scrap, continuing to suggest that futures traders expect strong near-term physical rebar prices.

The backwardated structure of the November to December portion of the curve weakened on the week, while the contango structure for the December to January portion of the curve shifted into backwardation on the week, but remained at elevated levels.

Platts assessed the October contract up $17/mt on the week to $712.50/mt on Oct. 14, while the November contract rose $29.50/mt to $740/mt on the week. The December contract jumped $36/mt to $736.50/mt, while the January contract gained $25/mt on the week to $730.50/mt.

Turkish physical rebar export prices jumped $37.50/mt on the week to $710/mt FOB on Oct. 14, as the market reported a fresh rebar booking to Canada during the week, but FOB prices were mostly supported by strong domestic demand and strengthened scrap levels.

However, some sources do not expect the upward trajectory in rebar prices to be sustainable. "The market is very unstable, and most producers are very unhappy with the situation because they say ... domestic demand is not going to be sufficient," one Turkish trader said. "I don't think that these higher prices are sustainable in the market."

Rebar futures weekly trading volumes this week on the London Metal Exchange totaled 10,580 mt, down from 40,950 mt traded volume last week.

The daily outright spread between Turkish export rebar and import scrap was assessed at $220/mt Oct. 14, up $2.50/mt on the week.