• Turkish Steel Shifts Gears And Futures Contracts Appear To Draft Off Market Uptick

2 MAYIS 2016
Turkish Steel Shifts Gears And Futures Contracts Appear To Draft Off Market Uptick
The Turkish long steel supply chain has been reminiscent of one of the more brutal ‘hors catégorie’ Tour de France climbs of late — a surprisingly fast ascent up an alarmingly steep mountainside.

Onlookers can’t quite believe the magnitude of the rise and participants are hanging on for dear life, because once you get dropped it’s a rapid backslide.

Prices of Turkish premium heavy melting scrap I/II (80:20) imports have risen over $100/mt since the start of February, from $177/mt CFR on February 1 to $291/mt CFR April 21, according to Platts market data.
Over the same period Black Sea billet export prices have gained nearly $150/mt, from $243/mt FOB on February 1 to $400/mt FOB April 21.

Such cost rises look almost unthinkable, particularly in a global steel market where the mainstream media’s discourse has focused largely on bad news — problems in the UK amid a whopping and growing global overcapacity being addressed by the OECD, for example.

But the hefty cost increases are being passed off in mills’ product prices; Platts benchmark FOB Turkey rebar assessment has risen from $320.50/mt on February 1 to $478/mt April 21.

Initially higher export offers gained little traction, and mills were supported by the strong domestic activity — domestic activity continues to be good, and large mills are still looking to pass off further cost increases to home buyers.

A lack of competitive alternatives globally has undoubtedly led to these overseas offers being more widely accepted by buyers in the Middle East and US.

China is still present in the export markets, but its offers have moved up at breakneck speed on brisk domestic demand, and undoubtedly a good degree of speculative buying by traders.

While the China Iron & Steel Association is warning rising output — with March production in China up — could curtail the gains, most participants appear more bullish. Stocks are low and the weather is warm, aiding construction and infrastructure spending, they suggest.

The now renowned flower show in Tangshan is undoubtedly filtering into more bullish sentiment, with the potential for supply curbs propping up prices.

Some mills are making as much as Yuan 600-800/mt on their crude steel production, according to sources. At the same time Beijing is pushing hard to achieve its gross domestic product for the year, with some thinking it could announce stimulus measures that may further boost the steel market.
What does the precipitous climb in the Turkish market mean? Well, for one, the London Metal Exchange is having some success with its embryonic rebar and scrap futures contracts. The scrap contract traded 15,330 mt in March, or 1,533 lots, while rebar traded 2,480 mt, or 248 lots.

Neither number looks huge if you’re trying to hedge a large vessel, but all contracts have to start somewhere, and both have curves going out over a year with market makers and liquidity providers submitting numbers daily.
One market maker suggests the LME’s “aggressive” traveling and meeting of banks and end-users has broadened participation in the contracts, alongside recent volatility.

“As someone who has been on the trading and physical side, it is starting to look like the physical side is opening up to participation in these type of instruments,” the source said.

Phillip Price, head of market risk management and derivatives trading at Stemcor, also believes mills and merchants are starting to trade the scrap contract.

“Particularly encouraging is increased activity in intramonth spreads, which can be considered a sign of a contract that is being utilized by participants in the physical supply chain such as mills and merchants. Anecdotally, there are a number of mills now actively trading the contract as well as several ferrous scrap suppliers and a number of traders,” he said.

Scrap liquidity is spreading along the curve with usage from a variety of stakeholders looking to manage exposure to price volatility, he added.

“The timing is optimal, particularly given the very rapid price increases we have seen across the segment over the past few months and many physical operators are understandably looking to protect themselves from the risk that prices will retrace their recent gains,” Price concluded.