LME scrap sees sharp losses, trading volumes rise

Scrap futures contracts on the London Metal Exchange saw sharp losses over the week to July 15, as the near-term portion of the curve shifted to strong backwardation.

S&P Global Platts assessed the July scrap contract down $8/mt on the week to $505.50/mt on July 15, while August dropped $25.50/mt to $498/mt, September contract fell $26/mt to $493/mt, and October decreased $12.50/mt to $496/mt.

In line with softening physical scrap prices during the week, the forward curve for July to August contracts shifted to a strong backwardation, suggesting that futures traders expect near-term weakness in the physical market. The September to October portion of the forward curve shifted to a soft contango structure, suggesting futures traders’ expectations of physical prices to strengthen at the start of the fourth quarter.

Spot prices for physical imports of premium heavy melting scrap 1/2 (80:20) dropped $11/mt on the week to $484/mt CFR Turkey on July 15, as several deals were heard at lower levels in the market.

Market activity was slow July 15 due to a Turkish national holiday, and is expected to remain slow over July 19-23, for the Islamic holiday of Eid al-Adha.

“I do not expect much activity over the holiday period, but the downside appears to be quite limited and I maintain the view that this will be a short and shallow correction,” one EU recycler said.

“It’s apparent that with the backdrop of Russian export duty, the European steel safeguard measures extension and the unrelenting elevated freight rates will collectively lend an upward bias to steel prices, It’s apparent and self-evident that scrap can’t remain decoupled from steel,” he added.

Weekly scrap futures trading volumes over the week to July 15 totaled 43,960 mt, up from 40,590 mt recorded last week. The levels were the highest recorded since the week ending May 27, when trading volumes totaled 52,080 mt.

In line with scrap, rebar futures for August to October contracts also dipped on the week, albeit maintaining elevated levels, but the July contract saw slight gains. The contango structure for the July to August contracts forward curve softened on the week, as the August-September forward curve turned flat. The backwardation structure for September-October contracts was almost firm, overall highlighting uncertainty in the near-term physical market.

Platts assessed the July contract up $2/mt on the week to $732.50/mt on July 15, with August down $10/mt to $739.50/mt, September dropping $4.50/mt to $739.50/mt, and October $5/mt lower at $734.50/mt.

Turkish physical rebar export prices dipped $2.50/mt on the week to $720/mt FOB July 15. Most mills softened offer levels during the week, amid a lack of activity on the export market. Market activity is expected to remain slow during the holidays.

The daily outright spread between Turkish export rebar and import scrap was assessed at $236/mt July 15, up $8.50/mt on the week.

Rebar futures weekly trading volumes this week on the London Metal Exchange totaled 2,920 mt, down from 11,980 mt last week.

— Rabia Arif, Viral Shah