How’s the ferroalloys market now ? Crazy !! Replenishment in contango and spot trading in backwardation.

A market is said to be in?contango?when the spot price is lower than its future price , whereas a market is said to be in?backwardation?when the spot price is higher than the future one

What??we are currently facing overall in the commodities??is a quite perverse and abnormal situation ; while??the current market prices are decreasing (backwardation)??due to low market liquidity , the costs of replenishment for traders and resellers are increasing (contango) .?

Trading in such market is extremely difficult: increased volatility due to a potential supply demand imbalance, driven mainly by an extremely negative sentiment , interest rates are huge and family budget is meagre and unable to face increases in mortgage , food costs , electricity …etc, so consumption is almost gone and thus impacting all along the supply chain

In a reduced liquidity market there is a clear impact in the hedging strategy as potential offsetting of price risk by taking future positions is impossible .

It is also a situation in which, at least temporarily, buyers can dictate the price they want, exerting more pressure on traders and resellers. ….?

BUT this can have a negative upside for buyers as in such situation seller can exit the market augmenting supply chain disruptions and change from”opportunistic buying” to??“panic purchases “ similar to what we saw just after the Ukrainian invasion (but due to different reasons of course ) .?

We may also see suppliers trying to go for???contract renegotiations as a measure to mitigate the impact . If spot prices are lower than future ones the seller might be forced to renegotiate their long-term contracts in order to adjust to this new situation.?

So even some buyers can see this situation attractive, on the medium and long run it will certainly have an overall??negative impact .

Now markets have almost disappeared and there is not much going on. There is clearly a lack of momentum … I’ve already heard significant “panic” sales in several Mn alloys and FeSi . A big steel mill in the south of Europe was buying almost 25% over the indexes taking opportunistic advantage of situation ,not because of real need ….. Be prepared for September as we will see a new blood bath of constricted supply versus (miserable) demand.