LME Ferrous Scrap contract on track for largest trading month

UNITED KINGDOM January 25 2017 10:32 AM

LONDON (Scrap Register): The London Metal Exchange’s ferrous scrap contract has broken its previous record trading month (October 2016) with a surge in activity. The January month-to-date volumes currently stand at 18,227 lots (182,270 metric tonnes), preliminary data published by the bourse showed on Tuesday. 

LME’s ferrous scrap contract is settled against the monthly average of TSI’s heavy melting scrap (HMS) #1&2 (80:20) CFR Iskenderun index and is cash-settled up to 15 months ahead. The typical amount of HMS #1&2 (80:20) scrap in a seaborne cargo to Turkey is just over 20,000 mt, according to Platts trade data from the last two years. 

“We are pleased to see LME steel scrap volumes continue to thrive since the start of the year, which we view as representative of the industry’s continued confidence in the contract, with participants able to benefit from an increasingly tight tradeable forward curve out to February 2018.” Alberto Xodo, Business Development Associate at the LME, reported. This past week has also seen open interest in the contract reach record levels when on January 20 it surpassed 5,000 lots for the first time. 

On Monday January 23, the February, March and April 2017 forward contracts were all trading at $278/tonne on LME Select, a slight contango to the day’s spot price of $277/t. From May 2017 onwards the curve moved into backwardation, with the largest discounts being the November and December contracts, both priced at $255/t. 

In the physical market, the ferrous scrap prices continued to weaken as dampened mill demand, largely due to the weakening lira, has left mills purchasing minimum volumes. Additionally, after a three month bull run, prices the US Midwest scrap market look to be rapidly weakening, forcing material to th