Physical scrap and rebar sellers are currently leaving money on the table judging by the London Metal Exchange's forward curves.
Midweek a Benelux-based merchant sold a composite cargo into Turkey for April shipment at around $275-$276/mt CFR normalized to a heavy melting scrap I/II (80:20) basis.
On Thursday the LME contract closed at $290/mt.
"The seller probably doesn't know I would have paid him $15/mt for nothing, a non-negligible opportunity cost," one trader using the contracts said.
"Sellers of scrap/rebar have an opportunity to sell higher on a forward basis," he added.
On Friday a deal from a premium US East Coast seller came to light at $283/mt CFR, while the March contract printed at $292 Thursday, when the deal was finalized.
Scrap for April, May and June closed at $290, $291 and $283 Thursday, while The Steel Index's underlying HMS 1&2 (80:20) CFR Iskenderun reference price was $277/mt.
Rebar closed at $449 for March, $450 for April, $448 for May and $445 for June, according to LME Select.
The underlying Platts FOB Turkey assessment was $425/mt Thursday.
Another trader with physical rebar exposure said he was beginning to have internal discussions about using the contract as a genuine hedge.
"That's the genuine test. The reason scrap is taking off is there are three or four people using it for genuine hedging," the first trader said.
Volumes across both contracts have slowed since the record month of January, amid issues with introductory brokers clearing trades. But the issue seems to be close to being finalized.
On Friday morning, as of around 10:00 am London time, 30 lots (300 tons) traded on LME Select for August at $287, up $3 on Thursday's close.
September traded at $285 for 35 lots, up $1 from Thursday.
As with any contract, screen trade is the tip of the iceberg of latent buying interest, with one source suggesting, as a rule of thumb, 20% of volume is done on the screen, while 40% is done via interdealer brokers and 40% principal-principal.
