PITTSBURGH The scrap
futures market has been eerily quiet following an influx of
activity in early March that resulted in the fledgling
contracts second-strongest performance since its
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 (
amm.com, 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
Midwest Ferrous Scrap Index for No. 1 busheling, which in
April fell 4.8 percent to $397.15 per ton (
amm.com, April 10).
Through March 31, the CME
contracts 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 (
amm.com, 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.