First northwest European HRC options trade on CME

: Metals
24/10/31

Options contracts settled against the Argus northwest European hot-rolled coil (HRC) index traded today for the first time since their launch on the CME Group exchange more than two years ago.

An option on the northwest European HRC contract on CME (EHR) traded today at a premium of €20/t for the right to buy a strip for the first quarter of 2025 (50 lots or 1,000t of January, February and March) at €700/t.

Options are a financial contract offering the right, but not the obligation, to buy or sell an underlying asset — in this case the EHR futures contract — for a specific price at a specific point in time. The right to buy is called a call option; the right to sell a put option. The buyer pays a premium to have this right, which is typically used to protect against an adverse market move.

The Argus northwest European HRC index stood at €558.75/t on Wednesday, while the January-March futures contracts are currently trading at about €620/t, putting the call option above the current spot market price and forward curve for the contracts in question.

Market participants suggested the trade could be part of a ‘short collar' strategy, in which someone who is ‘long' on the underlying futures contract (trading on anticipation of an upwards move) buys a put option (the right to sell at an agreed price) to protect their long position for a premium, but then sells a call option to receive a higher premium to offset the cost of the put.

CME Group launched the EHR futures contract in March 2020. Since then more than 3.6mn t of steel futures have traded, with more than 1mn t this year alone. Open interest — a measure of liquidity measuring the volume of open contracts — currently stands at a record high of more than 230,000t. Options were added in May 2022.

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

24/12/23

Viewpoint: US steel glut may dampen prices, profit

Houston, 23 December (Argus) — Persistent steel oversupply in the US may continue to dampen domestic steel prices and steel mill earnings as the market faces weak demand and rising import volumes. Buyers told Argus the market remains oversupplied and has been for most of 2024, despite US steelmakers lowering production through the first three quarters of 2024. Raw steel production was 66.21mn short tons (st) this year through 28 September, a 1.11mn st decline from the first three quarters of 2023, according to weekly data published by the American Iron and Steel Institute (AISI). While steel production is lower, many US buyers believe steelmakers are still producing too much material, making it easy to buy spot tons. The Argus US hot-rolled coil (HRC) lead time crossed into 2025 in mid-December, and HRC lead times have averaged 4.3 weeks in 2024, down from six weeks in 2023. Facing these factors, US steelmakers see lower profits or even losses during the final quarter of 2024 and potentially into 2025. The five largest steelmakers by production capacity — Cleveland-Cliffs, Commercial Metals (CMC), Nucor, SDI and US Steel — reported combined profits of $3.55bn for the first three quarters of 2024 — $4.35bn lower than the same period of 2023. In recent fourth quarter earnings guidance, Nucor and US Steel said they could post a profit and loss, respectively, at levels not seen since the third quarter of 2020. Demand pressured by high rates A decline in demand has been the fundamental issue this year and is expected to continue to be moving into 2025. Many service centers reported lower steel consumption forecasts for 2025 compared to this year, outpacing any decline in US steel production. Automotive production and steel consumption from automaker Stellantis is said to have sagged recently as that company struggles to tamp down high vehicle inventories . High interest rates constrained demand and put pressure on buying trends. The Associated General Contractors of America's (AGC) chief economist Ken Simonson said recently that increased federal government project announcements have not led to more construction contracts, and that spending for major private construction categories are flat or shrinking. Nonresidential construction is one of the largest consumers of steel products. That lower trend in nonresidential spending is being masked by higher residential investment, with construction spending at $2.17 trillion on a seasonally adjusted annual rate in October, 5pc above the same period the prior year and up by 0.4pc sequentially. Much of the increase was from higher spending in residential projects. Coupled with this lower demand, new and better operating steel mills could intensify the supply overhang. US Steel recently started up its new 3mn st/yr Big River 2 flat steel mill in northeast Arkansas and after years of production issues, Steel Dynamics' (SDI) 3mn st/yr Sinton, Texas, mill is operating at higher rates. Australian steelmaker BlueScope also reported that it is continuing to work on improving efficiency at its Ohio-based North Star flat steel mill, which it completed an expansion to last year. Farm tractor sales, another consumer of flat steel, stood at 196,000 units through November, down by 30,900 units from the same period the prior year. The higher production is coming online as steel prices are falling. The Argus US HRC Midwest assessment had a third quarter average of $680/st ex-works, down by 27pc since the first quarter average. Import volumes adding to oversupply Lower global steel costs have led to stubbornly elevated import volumes, despite persistent US oversupply and short lead times. Import volumes rose to 22.3mn st in the first three quarters of 2024, up by 431,000st from the same period prior year, according to data from the US Department of Commerce. By Rye Druzchetta US steel mill profits, production, steel imports and prices Through 3Q 2024 Through 3Q 2023 Difference US steel mill profits ($mn) Nucor 1,740 3,739 -(1,999) US Steel 473 975 -(502) Cleveland-Cliffs -(307) 554 -(861) SDI 1,330 2,027 -(697) CMC 309 598 -(289) US production US steel mill utilization rate (%) 76.7 76.9 -(0.2) Raw steel production ('000st) 66,212 67,325 -(1,113) Imports Quarterly steel product imports ('000st) 22,301 21,870 431 Argus-assessed pricing ($st) US HRC MW ex-works $796 $911 -($115) US rebar MW ex-works $809 $904 -($95) Company filings; AISI; US Department of Commerce; Argus CMC fiscal quarters adjusted to most relevant calendar year quarter. Utilization percentage rate and production tonnage estimates based on AISI data through 28 September. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: China SiMn prices face pressure in 2025

24/12/23

Viewpoint: China SiMn prices face pressure in 2025

Beijing, 23 December (Argus) — Chinese silico-manganese (SiMn) alloy prices are expected to face downward pressure in 2025, as unpromising steel outlooks may outpace potential further output curbs at most Chinese alloy smelters. Argus -assessed prices for 65/17-grade alloy fell to 6,000-6,150 yuan/t ($822-842/t) ex-works on 19 December, down from Yn8,200-8,500/t ex-works on 30 May, when prices rose to a multi-year high after Australia-based South32's output suspension at its Gemco mine sharply lifted manganese ore feedstock prices. A sustained decline in steel demand and mounting inventories at many alloy plants forced alloy spot prices downwards from June onwards, although more suppliers started to hold offers firm in the past few weeks on the back of higher ore costs and restocking purchases from steel mills before the end of this year. Slowing steel demand China's crude steel output in January-November fell by 2.7pc from a year earlier to 929.19mn t, according to data from China's National Bureau of Statistics. Steel production in November fell by 4.3pc from 81.88mn t in October. China's crude steel output is expected to have inched down further in December, as more domestic mills will conduct annual equipment maintenance before the end of this year, according to market participants. The output decline was attributed primarily to the weakening domestic real-estate sector, a major consumer of crude steel, in which investment from January-November fell by 10pc on the year. Domestic steel consumption has shown no signs of picking up, with regional steel prices having fallen in November. Shanghai's mainstream hot-rolled coil ex-warehouse prices assessed by Argus fell to Yn3,470/t on 29 November, down by Yn50 from 30 October. China's real-estate industry is still facing challenges, although the government has introduced fiscal policies that support the slowing construction sector. There remains the likelihood of a decline in sales and housing prices in 2025, according to market participants, given the current scale of unfinished projects and unsold house inventories. Reduced alloy output Lower steel demand during the economic slowdown and a squeeze in profit margins at most alloy plants caused by higher ore feedstock costs and lower bid prices caused Chinese Simn production to fall this year. Domestic output of the alloy is unlikely to recover in 2025 because of unprofitable margins and shrinking steel consumption. China's production of the bulk alloy is estimated to have fallen to about 10.45mn t this year, down from about 11.8mn t in 2023 and 9.85mn t in 2022, some market participants told Argus . More alloy plants in China's Inner Mongolia and Ningxia province were forced to cut or suspend operations in the first half of this year, particularly over March-May, when China's output fell by nearly 20pc on the year to about 2.34mn t. Inner Mongolia and Ningxia are China's key producing hubs for SiMn, accounting for 60-70pc of China's total production. Reduced alloy demand, falling alloy prices and lower shipments from South32 weighed on China's imports of manganese ore feedstock from main suppliers. China's manganese ore imports declined by 7.8pc on the year to 26.79mn t in January-November, customs data show. The average import price was $152/t for January-November, down by 3.7pc on the year. China's ore imports from Australia decreased by 55pc on the year to 2.11mn t in January-November, while China imported more ores from South Africa and Ghana to make up for the loss. Argus expects China's ore imports to rise next year as South32 restarted mining activity at its Gemco unit in June and is considering resuming exports next year. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Asia scrap set to face uncertainty in 2025

24/12/23

Viewpoint: Asia scrap set to face uncertainty in 2025

Singapore, 23 December (Argus) — The Asian scrap metal sector is poised to face a tumultuous start in 2025, coming under pressure from a supply glut of steel exports from China, persistently low steel demand and uncertainty stemming from mounting protectionist measures to safeguard domestic steel businesses. An ongoing oversupply of steel products is expected to exert continuous downward pressure on Asia's ferrous sector, at least in the first half-quarter of 2025. China's crude steel production is set to surpass the 1bn t mark again this year as production stood at 850.7mn t across January-October. And it is clear that domestic steel demand in the country has lagged behind supply. China exported 101.2mn t from January-November this year, marking a 22.6pc spike from the same period in 2023. The surge was particularly evident in October, when exports grew by 40.8pc year on year, hitting an eight-year high as Chinese mills sought export markets to relieve domestic sales pressures. Beijing has announced a series of stimulus measures since late September, but the impact of these measures so far has been limited to cushioning falls in the property market as the recovery in property sales has been largely confined to top-tier cities, and market participants expect any recovery to remain subdued in 2025. Taiwan Taiwan's ferrous sector has seen a series of setbacks this year in the form of natural calamities, geopolitical tensions, inclement weather and increased competition from cheap semi-finished steel from Russia, China and Indonesia. In addition, real-estate demand has been significantly lower since the third quarter of this year after Taiwan's central bank tightened credit controls. The weaker real-estate market has driven many construction companies to suspend or delay their projects, which dented steel and steel scrap demand further. The ferrous scrap price and demand outlook is mixed, and many participants foresee no improvements even by February or March. South Korea South Korean steelmakers have faced significant challenges this year, and the world's sixth-largest steel producer is expected to face persistent headwinds in 2025 on the global economic slowdown, stiff competition from other low-cost steel producers, potential tariffs under US president-elect Donald Trump's second term and rising electricity prices. South Korea's leading steelmaker, Posco, shut down its No 1 wire rod mill at the Pohang Steel Works in November, after 45 years of operation in response to a the global oversupply of wire rods and intensified competition from low-cost imports, particularly from China. Hyundai has also shut down its Pohang No 2 plant, which has capacity of 700,000t/yr for long products used in the construction sector. The closure of these operations, coupled with prolonged low demand, probably will limit South Korean buyers' appetite for steel scrap in the first quarter of next year. Vietnam But there is hope for another key Asian steelmaking and consumption hub — Vietnam. Finished steel product sales rose by 15.6pc on the year to 24.5mn t in the first 10 months of this year, while steel exports grew by 6.2pc to 7.1mn t, according to the Vietnam Steel Association. Scrap imports also increased, by 11.7pc on the year, during the period. Market participants expect domestic construction steel demand to increase next year, driven by government-led infrastructure projects aimed at achieving a GDP growth target of 6.5-7.0pc. On the flip side, Vietnam steelmakers are facing various anti-dumping investigations in other markets, and seaborne steel prices will be under pressure if the Chinese domestic steel market continues to show weakness in 2025. In addition, the export outlook from China may ease, with more countries introducing protectionist measures to safeguard their local steel industries. Several more countries this year have implemented or are considering imposing anti-dumping duties on Chinese steel products. These include major economies such as Japan, South Korea, Vietnam, the EU, India and Canada. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Japan carmakers Honda, Nissan start formal merger talks

24/12/23

Japan carmakers Honda, Nissan start formal merger talks

Tokyo, 23 December (Argus) — Japanese automakers Honda and Nissan said today they have officially started merger talks and are aiming to close a deal by June 2025. Fellow Japanese carmaker Mitsubishi is also considering joining the transaction. Honda and Nissan have signed an initial agreement to discuss a merger, including by setting up a joint holding company under which the current brands would operate as subsidiaries. Honda will appoint a majority of the holding company's board members including its president or representative director, Honda's president Toshihiro Mibe said on 23 December. Mitsubishi will make a final decision on whether to participate in the negotiations before the end of January 2025. A Honda representative told Argus on 18 December that the firm was exploring a possible merger with Nissan. Collaboration on the electrification of automobiles is one of the major reasons for the merger, according to Honda and Nissan. The firms agreed a strategic partnership in March to work together on electrification, studying possible areas of co-operation in developing automotive software platforms, core components relating to electric vehicles (EVs) and complementary products. Honda aims to electrify all its new cars by 2040 and is investing ¥10 trillion ($64bn) by 2030 partly to reduce battery costs, which account for around 30-40pc of the total cost of producing EVs, Mibe said in May. Honda's combined sales of EVs and fuel cell EVs (FCEVs) more than doubled to around 42,000 units in 2023, according to the company. But this only accounts for around 1pc of its total sales. Further investments on electrification by a single manufacturer are not feasible, Mibe said on 23 December. Nissan produced 3.4mn vehicles in 2023. It does not provide a precise breakdown for global EV sales, although it said in August 2023 that such sales had surpassed 1mn units since its first delivery in 2010. This is dwarfed by foreign EV competitors, including Chinese producer BYD and US manufacturer Tesla, whose sales exceeded 3mn and 1.8mn units respectively in 2023 alone. The merger is also designed to optimise facilities owned by Honda and Nissan, Mibe said. But he denied that it would lead to a reduction in production capacity or asset cuts. The companies instead aim to expand output, Mibe added, although he did not disclose a detailed plan. Nissan is struggling to make a profit, partly because of weak EV demand. The company's net profit slumped by 94pc on the year to ¥19.2bn in April-September, prompting it to cut global production capacity, including for EVs, by 20pc to around 4mn units/yr. Nissan's financial struggles will not affect its collaboration with Honda, but it needs to accelerate its financial recovery, Nissan chief executive Makoto Uchida said on 7 November. But Mibe suggested on 23 December that Nissan's financial situation could cause the proposed merger to be scrapped. Japan's trade and industry ministry (Meti) has yet to make any official comment on the merger talks. But Meti minister Yoji Muto said on 20 December that restructuring the industry would generally help increase the value of private entity and promote innovation. By Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Securing steady Ni ore supply the new focus

24/12/23

Viewpoint: Securing steady Ni ore supply the new focus

Singapore, 23 December (Argus) — Nickel ore supply security has become a main focus for investors and smelters after the delayed approval of Indonesian nickel mining work plans (RKABs) resulted in tight spot ore availability earlier in the year. Ramping up capacity and maximising profit margins have always been the priority for smelters, but the shortage of Indonesian nickel ore in some months this year turned their attention to securing ore supply instead. The lack of ore availability was largely attributed to slow RKAB approval rates and a disproportionate allocation of RKABs to companies and regions, particularly during the monsoon in May-August. Some smelters resorted to cutting production, while others opted to seek out alternative supplies. Imports of nickel ore to Indonesia were 55 times higher on the year in January-October, with the Philippines providing the bulk at 9.08mn t. Indonesia has approved a quota of 272mn wet metric tonnes (wmt) for 2024 and 247mn wmt for 2025, according to market participants. And more RKABs are expected to be approved in the coming months. Indonesia's nickel production — including nickel pig iron (NPI), mixed precipitate hydroxide (MHP) and matte — is projected to rise by 17pc on the year to 2.15mn t of nickel metal equivalent this year, and is expected to increase by 12pc to 2.4mn t in 2025, Argus estimates. The increase is largely driven by MHP and matte, while NPI growth has slowed owing to a lukewarm stainless steel sector. Indonesia-produced NPI is typically exported to China's stainless steel melt sector, whose output is projected to climb by 4.1pc on the year to 38.4mn t in 2024. But the growth rate could slow to 3.5pc given lacklustre demand in the machine building and property sectors. Indonesia has become the main global supplier of MHP and matte after a nickel price downturn forced various western mines and plants to enter care and maintenance, temporary suspensions or shutdowns. MHP and matte are the feedstocks to produce nickel sulphate, which is used in the production of nickel cathodes or batteries and subsequently electric vehicles (EVs). Nickel consumption in the Chinese EV sector is expected to remain firm at 343,000t in 2024 and 2025, while cathode output is expected to increase with new projects under way. The London Metal Exchange warehouse system has become a popular option to store the surplus cathodes. The forecast NPI, MHP and matte output of 2.15mn t and 2.4mn t of nickel metal equivalent would require 217mn wmt and 246mn wmt of nickel ore in 2024 and 2025, respectively, according to Argus data. This suggests that RKAB for 2024 and 2025 is probably more than enough to meet demand. But the unpredictability of the approval timeline, allocation of RKABs and weather conditions could disrupt ore availability, prompting smelters to adopt a more cautious stance — monitoring the progress of further RKAB approvals while actively securing new sources of nickel ore supply. Locking in supply agreements with nickel mining firms seems to have become a main priority of smelters, with collaborations increasing between Chinese investors and mining companies. Chinese battery metals and materials producer Green Eco-Manufacture (GEM) is partnering Indonesian nickel firm Merdeka Battery Material to secure ore for their high-pressure acid leaching (HPAL) production. GEM has another joint HPAL project with PT Vale Indonesia (PTVI), a subsidiary of Brazilian mining firm Vale. PTVI will also supply nickel ore to a HPAL project with Chinese battery metals and materials producer Huayou Cobalt and global automaker Ford. The Indonesian government extended mineral and coal information system Simbara to the nickel and tin supply chain in in July, in an effort to increase domestic and export shipment transparency, curb illegal mining and raise state revenue. But the system's implementation could disrupt steady nickel ore supply and consequently raise production costs because only registered mining firms with RKABs are allowed to issue invoices and billings, market participants suggested. Nickel ore demand VS RKAB.pdf Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more