US hot-rolled coil futures were steady during the week ended July 6, coming off the prior week’s record highs as busheling scrap futures dipped slightly but remained firm ahead of the July scrap buy-week.
Demand remained firm as mills and service centers raised offers and were in no rush to sell limited volumes for August and September. Service center sources mentioned rising bids for spot tons due to strong customer demand.
Market participants said there was concern regarding rising freight costs both inside the US and for imports, and possible bottlenecks.
Trading volumes were down week on week ahead of the holiday in the US, according to CME Group. Some positions continued to roll further down the curve to hedge rising spot prices. Fresh buying was seen coming into the market, especially for 2022 contracts, as spreads further down the curve continued to ease this week.
The HRC spot market has seen recent spot tradable values of up to $1,750/st to $1,800/st for August production. An offer was heard at $1,860/st from a mini-mill with very limited availability by a Midwest service center. An offer was seen at $2,080/st from a Midwest converter for August cold-rolled coil, with tradable values of around $1,940/st to $1,960/st for September CRC.
The Platts TSI US HRC index held at a record high of $1,742.75/st on July 2, as prices have risen $1,303.25/st since August 2020, when the recovery began.
Supply remains tight with low inventories
The July/August spread flipped again on July 6 to around flat from a $20/st contango on June 29.
The structure of the forward curve continued to flatten during the week but backwardation remained. The July/December backwardation narrowed to around $200/st July 6, from $331/st on June 1, as most of August production sold out, pushing up prices further down the curve with limited availability even for August/September domestic production.
The rolling of hedges moved lower along the curve into September as the July/September spread traded from a $5/st contango to a $5/st backwardation on July 6. It will be harder for the market to hedge imports going forward with the steepening structure. Some fresh buying came into the curve, mainly in the first half of 2022 as import offers have slowed toward the year’s end.
The December contract dipped from the contract highs of $1,644/st set on June 30 to around $1,606/st. The Q3/Q4 spread backwardation narrowed to around $108/st, from around $197/st over the past two weeks.
Contracts for 2022 continued to see volumes — with Q1 2022 trading higher by $25/st to $1,490/st on July 7 — with 1,887 lots trading in 2022 during the week ended July 6.
The curve remained in backwardation on the back of long domestic mill delivery lead times and limited imports available before the end of the year, though a large shipment is expected from Turkey in the fourth quarter to help fill tons lost from outages.
Import lead times had helped to flatten the curve during April and May, but that opportunity remains tight looking into the fourth quarter with spreads holding the backwardation and lead times now pushing to year’s end. Many participants are less willing to book tons.
US mill HRC lead times rose to 8.5 weeks on June 30, well above the 10-year average of 4.8 weeks.
The July/Q4 backwardation narrowed to around $133/st with some fresh hedging further down the curve. Most of the larger volumes were rolling out of July into August and September, and with backwardations narrowing during the week, short hedges looked to take advantage, along with some fresh buying in October and December.
Rising transportation costs from Houston, especially by truck, made imports even more unattractive. Still, traders were looking to fill the demand gap from recent shutdowns by importing cargoes from Turkey. An import deal was heard at $1,600/st DDP Houston from Turkey for October arrival by a trader.
As futures continue to rally, the spot/3rd-month LME spread slipped into a slight contango with backwardations remaining intact for the rest of the curve. Fundamentals have not changed and spot prices continued to rise.
As of the June 29 close, the last Commitment of Traders report from the Commodity Futures Trading Commission showed short positions by managed money decreased by 426 lots to 13,780 lots and spread positions increased by 170 lots to 1,861 lots. At the same time, commercial short positions increased by 240 lots to 12,689 lots and swap dealers shorts decreased by 260 lots to 1,060 lots.
Electric arc furnace mill margins in the Midwest continued to expand week on week July 2, as prime scrap prices remained firm ahead of the July buy-week and HRC prices hit new record highs. With the Platts HRC/busheling spread rallying to $1,171.32/st and the Platts HRC/shredded spread increasing to $1,293.64/st, margins have risen 247% since the start of Q4 2020.
Scrap steady ahead of July buy-week
Midwest busheling scrap futures dipped slightly on July 6 from the previous week’s highs, with August through December holding around $710/lt on light volumes. The July/December spread moved in slightly to a $42/lt contango from flat on June 15, as spot prices look steady with the July buy-week about to kick off. The widening arbitrage between HRC and busheling scrap attracted buying, especially versus Q3-Q4 HRC short hedges.
The September contract settled at a $72/lt premium to spot on July 6, as the market eyed forward prime scrap consumption from additional EAF capacity, the increase in auto production and strong mill demand. The Platts busheling scrap delivered Midwest spot price held at $640/lt on July 2.
The busheling-to-shredded scrap differential was steady at 137/lt on July 2, as Midwest prime scrap prices remained flat during the week. Busheling prices were unchanged at $640/lt.
Midwest shredded scrap prices ticked up to $503/lt on June 29 and have held at that level as prices for obsolete grades are expected to trade sideways for July.
Market tightness has been supported as some mills and scrap dealers faced staffing troubles in melting and moving scrap to meet demand. Labor on the trucking side continued to create logistical issues.
The Southern US busheling scrap price held at $625/lt, while Southern shredded price held at $510/lt July 2.
“Tradable value for prime scrap looks [to be] up $10/lt to $20/lt for July,” said a Midwest broker. “While obsolete scrap prices looked [to be moving] sideways in the Midwest.”
Both Platts HRC EXW Indiana and Shredded Scrap Delivered Midwest index futures trade on CME Clearport and CME Globex.
Source: Platts