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US HRC swap prices track physical market lower - 29 September 2011

Hot rolled coil swap prices in the US have come off around $50/short ton in the last week as buyers have beaten back price hikes in the physical market, traders and brokers tell <b>Steel Business Briefing</b>.

“The market [for swaps] has been trading in a fairly steep contango, the forward price at a premium to spot, but that has been eroded over the last week,” one broker says. “Since the US mill increases do not seem to have stuck the forward curve has come down. It was quite high with a strong contango until last week,” a trader adds, suggesting prices were well above the cost of finance level.

He says inter-dealer offers for the first quarter are now down to $720/s.t and dropping fast. The broker pegs Q1 at $710/s.t, with Q2 at $715/s.t. In contrast physical prices are between $640-690/s.t as the mill hikes of $100/s.t announced in August have disappeared, SBB notes.

“The market is not weaker, but people have woken up to the fact there will be no improvement in the short-term,” a trader says.

Most of the liquidity on the US hot rolled coil contract is coming from service centres, but is driven by end-users who want fixed prices. One broker says it sees around an average 50,000 s.t/month of trades, with a record 60,000t done in August.

The south and northern European hot rolled coil swaps have been quiet over the last fortnight: Q1 is trading at around €560/t in n.Europe, while the southern contract is €545/t for the same period.


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