Turkish scrap futures trade continued to intensify Wednesday as the country's deteriorating macroeconomic environment continued to impact the physical market.
Trade continued to increase on the London Metal Exchange's ferrous scrap contract in the first few days of this week, LME data shows.
Over 20,000 mt were traded Tuesday on scrap and the contract had its first carry trade go through Wednesday, with March traded at a $1.50/mt discount to February for 10 lots, sources said.
A carry trade is the simultaneous sale and purchase of the same tonnage for delivery on different dates.
"While time spreads have been trading in the inter office telephone market and on legs as outright for some time now, it's extremely encouraging to see Select [screen] traders borrowing and lending the market," Phillip Price, CEO of Ferrometrics and a market maker for the ferrous contracts, told S&P Global Platts.
"This is a sign that the market is moving to a more sophisticated phase whereby hedgers are able to easily adjust paper positions against fluctuations in the physical supply chain and traders are able to express a view on supply chain value at a time of extreme volatility in freight rates, FX and commodity prices," Price said.
The LME's new market making program appears to have been bearing fruit, with January already surpassing December's volume in the first handful of trading days.
The curve lurched lower Wednesday on the back of a softening physical market, as it appeared mills were reluctant to buy into the bullish discourse espoused by sellers.
January traded $6/mt lower from Tuesday's close in the afternoon, at $291/mt, with Feb $7/mt lower at $293/mt and March off $11/mt at $284/mt.
A broker active on the scrap contract said February's bid-offer was $288-$296/mt, March $282-$290/mt and April $278-$286/mt.
Physical sell-side sources have been alluding to winter impeding collection and mills needing to buy for February production, as well as dramatically stronger pricing in the US, as evidenced by the January buy-week.
Nevertheless, trade has been scant and the latest deals that came to light -- from the back end of last week -- pointed to softer pricing.
A large electric arc furnace-based steelmaker in the Marmara region bought a cargo of Baltic 80:20 at $286/mt CFR and European 80:20, which typically trades at a discount to US and Baltic material, at $282/mt CFR.
The Baltic deal, for prompt shipment, traded slightly below the European deal for early February loading, belying the backwardation seen in the paper market.
The Steel Index's reference price for HMS 1&2 80:20, which the LME contract settles against, slipped $4/mt to $288/mt CFR Iskenderun Wednesday.
Buyers' have been hammered by the seemingly inexorable decline of the Turkish lira, which is already down 10% this year against the dollar and approaching the Lira 4/dollar mark, after sustained softening in the second half of 2016 following the failed coup.
Turkey's current account deficit ballooned in November, according to data released Thursday, amid a softening in manufacturing and export activity, which sent the currency around 4% lower against the greenback.
Scrap has appeared overvalued relative rebar of late, with mills struggling to make export sales since the arbitrage to Southeast Asia closed, and the tumbling lira and cold winter biting into domestic demand.
But trade on the LME's rebar contract suggested some strengthening in rebar going forward -- January traded up a buck from Tuesday's close at $436/mt, while March and April printed $6/mt and $7/mt higher respectively.
