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Scrap futures sleep through pricing lull

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

PITTSBURGH — The scrap futures market has been eerily quiet following an influx of activity in early March that resulted in the fledgling contract’s second-strongest performance since its September launch.

Activity in April has been silent, with no trades since early March, possibly due to expectations that the market was going to slide.

In March, trading volumes for CME Group Inc.’s U.S. Midwest No. 1 busheling ferrous scrap futures contract totaled 5,280 gross tons, just shy of the 5,340 tons recorded in January (, Feb. 5).

Most of the March trades occurred early in the month as investors sensed a healthy uptick, but the retreat of scrap prices since then has pushed hedgers to the sidelines.

"People anticipated that the scrap market was moving up and jumped in. A week later, dealers were already capitulating (on expectations that) the market was going to be down in April," one trader said. "Now it seems that May will not tank but will cut back a little bit further, so that has limited trading."

The CME contract is based on AMM’s Midwest Ferrous Scrap Index for No. 1 busheling, which in April fell 4.8 percent to $397.15 per ton (, April 10).

Through March 31, the CME contract’s open interest was at 4,640 tons for settlement through December 2013. May bids are at $375 per ton, with offers at $395 per ton.

Another factor that could be putting a chill on interest in futures market positions is the longer-term sentiment that scrap prices have no strong upticks on the horizon.

"There is way too much finished supply, prices are not sticking and the whole steel complex is weak," the trader said.

The impact of Charlotte, N.C.-based Nucor Corp.’s 2.5-million-ton direct-reduced iron facility in Louisiana, set for commissioning in June, could further pressure the prime scrap market (, March 26).

"Any instance when you add a new source of raw material supply, it will break down the whole cost chain," the trader said.

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