UNITED STATES November 03 2016 12:16 PM
LONDON (Scrap Register): Following recent price rises in the Turkish obsolete scrap imports market, The London Metal Exchange (LME) saw record volumes of trading on its ferrous scrap contract in October, with a total of 147,380 metric tonnes cleared on the bourse. In comparison August saw 30,160 mt traded, and September 35,240 mt.
Since its launch in late November 2015, the contract has seen a net total of 355,200 mt of ferrous scrap cleared. The volume of material that moved in October represents over 40% of the total volume of trading. The LME's ferrous scrap contract is cash-settled against the heavy melting scrap I/II (80:20) benchmark index as published by The Steel Index (TSI).
“We have seen significant developments in the LME futures market for scrap, with a number of physical players entering the market to hedge their exposure to steel scrap price risk” Matthew Chamberlain, Head of Business Development at the LME commented. Indeed, earlier in the month, the futures contract saw a record 38,000 mt traded in a single day, with strong trading activity towards the end of the month. Crucially, this represents a volume greater than the typical amount contained in a deep-sea cargo of around 20,000 mt, according to trade data from the past two years.
TSI’s daily Turkish scrap imports index price has been steadily rising over the course of October fueled by strong demand for obsolete scrap from Turkey’s EAF-based steel producers.
“Turkey’s mills have been extremely active in the past few weeks, we have seen over 1.5 million tonnes worth of scrap deals concluded” Stefan Swanepoel, Scrap Analyst, notes.
“Scrap prices in the Turkish market have felt a tailwind from surging coking coal prices – the other key raw material ingredient for BF producers. The rise in the latter has seen less competitive semi-finished steel prices in Asia and the CIS region relative to scrap, with Turkey’s EAF steel producers opting to melt scrap, instead. At the same time, BF-based producers have signaled their intent to increase the scrap charge (and thereby reducing coke usage) in the burden, further helping to support higher price levels” Swanepoel noted.
LME data as of October 28, indicated open interest on the scrap futures contract more than doubled month-on-month to just over 40,000 t (equivalent to a full Handymax vessel). The most active futures contracts were December 2016 and January 2017, with open interest extending as far out as August 2017.
The latest LME forward curve (October 31) was in steep contango, with scrap prices reaching a high of $251/t for the December contract, which is $12/t above the Turkish scrap spot price at the time of writing. Looking further ahead, forward prices declined slightly, with prices levelling out at $241.50 from May 2017 onwards.