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Ferrous scrap futures slump on stable prices

Keywords: Tags  ferrous scrap, scrap futures, CME, Midwest No. 1 busheling, AMM Midwest Ferrous Scrap index, Lisa Gordon


PITTSBURGH — A stable raw material sector hasn’t helped the scrap futures markets, which barely had a pulse last month.

August’s trading volume for CME Group’s U.S. Midwest No. 1 busheling ferrous scrap futures contract fell to zero from 2,500 gross tons in July.

"The problem is futures have not done well when prices are stable. The sentiment is relative and carries over to other commodities," a futures broker said.

The CME contract is based on AMM’s Midwest Ferrous Scrap Index for No. 1 busheling, which settles on the 10th of each month. September settled at $400.07 per ton (amm.com, Sept. 10), down 2.4 percent from $409.95 in August.

There are no signs on the horizon of a healthy bump in prices, which lessens a need for a player to mitigate risk and take a position in the futures market. September’s bids are at $395 per ton with offers at $405, compared with $400 and $415 per ton, respectively, in August.

The stability in the domestic ferrous scrap market is partially due to weaker demand for U.S. exports. "The market has been more stable because of a prolonged lack of exports of any material consequence," the broker said. "Without an impact by exports, the scrap market has been left to the fundamentals of the market to determine price."

There also is a sentiment that ferrous scrap may be at its peak. "Scrap has stayed remarkably stable but dealers feel there is a significant chance that numbers could go lower, and it doesn’t make sense to lock in at the current numbers," the broker said. "There is not a lot of risk to upside of the scrap market going forward."

If there is a downside to prices on the horizon, scrap suppliers could benefit from locking in a position at higher numbers to protect themselves from falling prices.

Hot-rolled steel futures also lacked liquidity in August because even though price increases were announced, many on the buy side believe they will be short-term, the broker said.


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