Indicative CME NE HRC curves show steep backwardation

: Metals
20/03/11

Indicative broker quotes for the CME exchange's north European hot-rolled coil (HRC) contract show steep backwardation to the current spot market.

Argus' northwest Europe HRC index, the settlement basis for the cash-settled CME contract, slipped by €0.50/t to €481.50/t ex-works yesterday, bringing the month-to-date average to €483.32/t. Indicative curves put the bid-offer spread for April at €453-463/t, with May and June both at €450-460/t, respectively.

This would be a big discount to the spot price, testimony to current market strength and the likelihood of softer demand ahead.

Should someone sell April at this level, they are expecting a softer physical market being reflected in the monthly-average of the Argus northwest Europe HRC index.

The physical market is delicately balanced. Buyers with small amounts to place are content to pay as high as €500/t ex-works, S235 base, given extended lead times.

One buyer placed at this level with a large steelmaker yesterday and cited strong lead times, and a reluctance to purchase prompter delivery from Italian mills given the risk of production or logistical disruptions. Some northwest mills claim to be booked into June, and even further out on hot-dip galvanised.

But others suggest that this is too rich given current demand levels, with end-users unlikely to pay more for cut-to-length and slit sheet. Some larger buyers are bidding around €470/t ex-works, and in some cases below.

Import offers are also very mixed. One Indian mill has offered to Antwerp at €480/t cfr, while Russian material is currently being quoted at €497/t fca. But material from other origins is being offered closer to €455/t cfr.

CME's contract has not traded yet, with the primary liquidity providers in the process of getting set up to trade; most should be ready in the next day or so, or by early next week, they suggest.

By Colin Richardson

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