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FUTURES WRAP: Near-term LME scrap contracts see gain, near-term backwardation softens

Highlights

Weekly trading volumes down for scrap, rebar contracts

Most rebar contracts also see gains on week

Most near-term scrap futures contracts on the London Metal Exchange saw gains over the week to Nov. 25, as the backwardated structure softened.

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Platts assessed the November contract down 50 cents/mt on the week to $491/mt on Nov. 25. The December contract increased $12/mt on the week to $479.50/mt. Meanwhile, the January contract rose $16.50/mt on the week to $464/mt. The February contract jumped $19.50/mt on the week to $457/mt.

The backwardated structure for the November-February forward curve softened on week, suggesting that futures traders have recalibrated their expectations of a near-term drop in physical scrap prices to be smaller than previously anticipated.

Spot prices for physical imports of premium heavy melting scrap 1/2 (80:20) dropped $4.75/mt on the week to $491.75/mt CFR Turkey on Nov. 25, as sellside sources cited lower workable levels for HMS material.

"The US are resisting lower prices for now but give it two or three weeks and they should lower - the Turks can't afford the prices being asked and they'd rather cut production than pay those high numbers," one UK trader added.

"The near-term backwardation went too far," another UK trader said. "With the physical spot price at $491.75/mt CFR, an offer at $485/mt for the December contract is not crazy, but a few weeks ago [Nov. 11] the December contract was in the low $460s/mt which made no sense, especially as the physical price then was just under $500/mt CFR."

Weekly LME scrap futures trading volumes over the week to Nov. 25 totaled 30,190 mt, down from 48,510 mt recorded last week.

Most near-term rebar futures contracts also saw gains on the week, while physical Turkish export rebar prices continued softening amid consistently weak demand.

Platts assessed the November contract up 50 cents/mt on the week to $721/mt on Nov. 25, while the December contract jumped $15/mt to $705/mt on the week. The January contract gained $6/mt to $691.50/mt, while the February contract inched down $1/mt on the week to $679.50/mt.

The backwardated structure of the November-December portion of the forward curve also softened on the week, suggesting that futures traders expect any near-term physical price downtrend to be less drastic than previously thought.

However, the backwardation over the December to February portion of the curve strengthened over the week.

Turkish physical rebar export prices dropped $7.50/mt on the week to $720/mt FOB on Nov. 25.

"The domestic market in Turkey is silent and exports are also super quiet but only as prices are unworkable," another trader told Platts. "Turkish mills will not be able to sell anything at $715-$720/mt FOB, the source said, and added that mills need to drop prices to $650-$660/mt FOB to sell rebars in the Far East market.

"Turkish mills cannot rely on small usual volumes sales to Yemen and Israel and occasional sales to North America -- it's not enough for them," he added.

Rebar futures weekly trading volumes this week on the London Metal Exchange totaled 7,790 mt, down from 14,360 mt traded volume last week.

The daily outright spread between Turkish export rebar and import scrap was assessed at $228.25/mt Nov. 25, down 2.75/mt on the week.

Elsewhere, Indian scrap futures weekly trading volumes over the week to Nov. 25 on the London Metal Exchange totaled 120 mt.

A total of 1,110 mt has traded so far on the contract, which settles basis the Platts CFR Nhava Sheva shredded scrap index, since its launch in late July 2021.