Scrap and rebar futures contracts on the London Metal Exchange jumped over the week to May 6, reflecting significant physical market strength on the back of the removal of Chinese steel export rebates for several products.
S&P Global Platts assessed the May scrap contract $45 higher on the week at $505.50/mt on May 6, while the June contract jumped $49 to $515.50/mt on week. The July contract also rose $33.50 on week to $515/mt.
Amid a strong hike in physical scrap prices, the forward curve contango structure for May to June contracts rose sharply over the week, suggesting futures traders expect significant near-term strength in the physical market, before shifting into slight backwardation over June-July contracts, albeit at significantly strong levels.
Spot prices for physical imports of premium heavy melting scrap 1/2 (80:20) gained $44.25 on week to $479.25/mt CFR Turkey on May 6, as the market reported fresh deals at elevated prices amid a significant increase in finished steel levels.
“With all this strength in the finished steel market, $500/mt CFR for scrap is a real possibility,” a Turkish trader said, adding that “the US is not there [offering yet] in the deepsea market.”
Weekly scrap futures trading volumes over the week to May 6 totaled 53,930 mt, down from 63,080 mt recorded last week.
Rebar futures also jumped on week in line with scrap. The forward curve also displayed a strong contango structure over May to June contracts, before shifting into a backwardation over June-July contracts, albeit maintaining significantly elevated levels.
This suggests that futures traders expect near-term price strength to continue in the physical market, while expecting a dip in prices although at elevated levels by the start of third quarter.
Platts assessed the May contract up $65 on week to $730.50/mt on May 6, while the June contract increased $90 on week to $750.50/mt and July contract rose $80 on week to $740.50/mt.
Turkish physical rebar export prices increased $35 on week to $690/mt FOB on May 6, as market sources reported fresh deals and mill offers at elevated levels reflecting the impact of Chinese tax rebate removal news released April 28.
Domestic rebar demand also appeared to have returned after buyers had postponed domestic purchases. Domestic consumers were keen to book material as they were seeing scrap and export rebar prices increase daily.
One UK trader expected the bullish sentiment resulting from the Chinese tax rebate news to continue at least for one month as mills were heard to offer rebar around $700-$715/mt FOB.
“I don’t think mills have to accept lower today, they can just wait for the market to catch up,” he said.
The daily outright spread between Turkish export rebar and import scrap was assessed at $210.75/mt May 6, down $9.25 on day.
Rebar futures weekly trading volumes this week on the London Metal Exchange totaled 3,830 mt, up from 2,650 mt recorded last week, reaching its highest level since March 31, when weekly trading volumes were recorded at 7,660 mt.
— Rabia Arif
