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CME scrap futures hit after sideways move

Keywords: Tags  busheling, Midwest No. 1 Busheling Ferrous Scrap Futures contract, CME, scrap prices, Lisa Gordon

PITTSBURGH — An unusual turn in the domestic ferrous scrap market in January might have contributed to a dampening in recent settlement prices for the first U.S. ferrous scrap futures contract.

CME Group’s U.S. Midwest No. 1 busheling ferrous scrap futures contract for February had more than three dozen lots settle on Jan. 10 at $390 per gross ton, a $20 decline from previous expectations. The contract will be settled based on AMM’s Midwest Ferrous Scrap Index for No. 1 busheling in February.

"People were confused that January’s scrap market wasn’t higher than December, and the lower price is a reaction to that," said one player in the derivatives market.

While the industry was anticipating higher scrap prices in January, prime scrap in the Midwest failed to follow its usual course and instead settled flat for the month (, Jan. 10).

While 37 lots, or 740 tons, settled at $390 per ton on Jan. 10, there have been 1,140 tons swapped on the futures exchange so far this month.

Bidders were willing to pay $380 per ton on Friday to take a position in busheling futures for February settlement, but as of midday no one had agreed to sell at that price.

The $390-per-ton price is in line with what is being quoted for CME’s futures offerings for March, but a busheling broker expects March deals to turn in a stronger performance.

"March is the biggest manufacturing month in the U.S. and is when things start roaring," the broker said. "More steel is sold and more scrap is generated during that month, so if March is down we are headed into a deep recession."

Looking nearer term, a scrap exporter believes the worst-case scenario for February is sideways. "Export numbers are pushing up and the export market will consume a lot of scrap in the next few weeks," he said.

The scrap futures volume is still trading thinly but is performing well for a new contract, the derivatives market player said.

Some 1,320 tons were traded in September, 4,440 tons in October, 3,500 tons in November and 900 tons last month. December is historically a slow month in the futures markets, according to a source in the hedging sector.

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