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Scrap rise piques CME futures interest

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

PITTSBURGH — A sharp spike in physical ferrous scrap prices this month has sparked renewed interest in the ferrous scrap futures market as investors came off the sidelines in the nick of time to capitalize on the pricing jump.

CME Group Inc.’s U.S. Midwest No. 1 busheling futures saw 199 lots representing 3,980 gross tons swapped in the first 12 days in March alone, after 50 lots representing 1,000 tons were swapped in February, CME data show.

The CME’s futures contract is settled based on AMM’s Midwest Ferrous Scrap Index for No. 1 busheling. In March, the Index settled at $417.26 per ton, up 11.2 percent from February’s $375.24 per ton (, March 11).

AMM publishes the Index on the 10th of each month, unless that falls on a weekend or public holiday, in which case it is published the following working day. The Index was published this month on March 11.

However, some physical trading had taken place in the days before March 11, giving market players some indication of where the CME’s futures contract might settle, sources said.

"The index doesn’t settle until the eleventh. It became apparent on the sixth that (physical) scrap deals were being done up $40 to $45 a ton. When that information of these higher deals flowed, that was the catalyst that sparked people to trade," an active metals futures source said. "So basically everyone knew on the sixth that prices were headed up and bought (positions on the CME contract) before the Index was officially settled."

But activity for the remainder of the month could be quieter due to timing, the source said.

"The majority of trades happen at the beginning of the month when prices become obvious. They don’t trade throughout the month because although there is talk about where the market will go, often it can just be smoke and mirrors," the source added.

The hope of taking advantage of the same circumstances in April aren’t very likely, according to a second futures trader, sensing that the scrap market has peaked. "Ferrous scrap appears to already be edging off its peak. Most ferrous prices, including iron ore, seem to be breaking down and the balance going forward appears to have a downside," he said.

The April futures contract settled at $404 per ton March 13. Positions have been taken out as far as October at $406 per ton.

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