Written by: Andre Marshall, CEO of Crunch Risk, LLC

As is always the case when markets are depressed, it creates a divergence of opinion like at no other time. People either smell a turn or a rotten egg. The rumor of prices traded is as wide as one has ever heard it ( I’ll leave those levels to others to report what those are). Nonetheless the divergence of opinion causes great disparity in pricing discovery and the futures markets across the board have been very volatile (SP, Crude, USD, Coper, etc). Traders have literally never seen such a long period of incredibly high volatility in the markets. Hot Rolled (HR) and Iron Ore have experienced some gyrations as a result this last week albeit with a generally higher trend. Risk of volatility is sure to continue.

NYMEX HR:

The futures market has picked up in price and in activity this week. Despite spot prices that were declining daily in the last week, the futures prices all of a sudden caught a bid at $650 for the Calendar Year ’12 period. From there, a number of buyers jumped in front of those levels. Offers immediately backed off from their $665/670 area and raised to $695/705 area. Since then the buyers have trickled in at ever higher levels on the bid, culminating in a Cal ’12 trade at $695 earlier in the week, and 1st Half trades today $690-695 area. Q1 also traded today either side of $680.

Market suffers still from sporadic liquidity and the rule is still to take advantage of liquidity when it’s there. I have attended recently the Steel Market Update conference at METALCON, CRU Conference in Chicago, and my latest Hedge workshop at the NYMEX in New York Wednesday, and I can say that it feels like the whole world is signing up for accounts in order to trade financially. This will be a very good thing for liquidity going forward. About 1260 lots or 25,200 ST has traded since last week. Market stable for now at these levels traded above.

Scrap/Iron Ore:

Some have come in very aggressive down over $50/T, but other transactions suggest that the market is headed for $30-35 down, and in some instances it looks like mills may already being coming up short in certain regions based on their aggressive price stance. It will be a while yet before this all plays out, probably next week before we know for sure where it settles. The Severstal announcement of a price increase probably will support dealers who want to hold out for more, sensing a turn. Export scrap markets are literally dead.

Iron Ore forwards dipped last week into the mid teens. This week they popped back up into the mid 120’s only to back off their highs. Spot prices the world over also have retraced up similar amounts only to then sag again. Those in the know think that $100/T will be a magnet force as the Chinese demand just isn’t there in earnest.

LME Billet:

LME billet has been dead quiet with activity now more focused on Cash then on 3 months. This could be a function of the aftermath of the tightness in this market as the shorts have all been pushed out and now the market is left to the actions of the longs who are either taking delivery from the long LME warehouse queue, or trading cash to get out. Looks like the latter for now. LME Billet stuck at $530/MT for cash and 3’s months with very little 3’s trading. Could be a bad omen for this contract.

SMU Note:

Our next SMU/Crunch Risk Hedging Price Risk workshop will be held in Houston, Texas on Wednesday, January 25, 2012. More information is available on our website: www.SteelMarketUpdate.com/Events or you can click on the following link. Steel Market Update is accepting registrations which can be done online or through our office at: 800-432-3475 (706-216-5440).