Commodities Post Biggest Monthly Drop Since 2008
Written by: Joseph Reinmann, CEO Kataman Metals
It’s beginning to feel like 2008 all over again.
The financial crisis in Europe is rapidly causing a contraction in global demand for commodities. Commodities posted their worst monthly loss in May since 2008 with copper dropping 12%, zinc down 7% and aluminum down 5%. Making matters worse is the recent surge in the U.S. dollar which will serve to accelerate steel and scrap imports and diminish exports – not a welcome development for U.S. steel prices.
The May spot price for Hot Rolled Coil on CME U.S. Midwest Hot Rolled futures contract settled yesterday at $660 down $3 from last week. Q3 HRC settled today at $648; up $3 from last week. Q4 settled at $655 yesterday unchanged from last week.
Volume on the CME U.S. Midwest Hot Rolled futures contract was light this holiday shortened week as only 50 lots traded (1,000 tons). Buyers and sellers remain sidelined waiting for further market cues. The closing of RG Steel has had no noticeable impact on the futures market.
Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each individual month through 2012 as compared to last week:
LME Billet Plummets 20% in May
The LME cash billet market settled yesterday at $387.00 yesterday down $101 per ton or 20.7% from May 1st as end markets for European steel are clearly in disarray.
The three month LME steel billet price settled yesterday at $425.00 down $75 per ton or 15% from May 1st.
Iron Ore Pauses
The iron ore market simmered over the past week as the recent down trend has paused at current levels ($135.50 for 62% Fe). The physical trade has moved up $5 per ton from the same period last week as the Chinese have come back into the market to pick off the occasional cargo. The futures market has made similar gains moving up nearly $5 per ton week on week. The most active Q3 contract which traded down to a low last week of $126 pushed back up to $130.50 today while the Calendar 13 has remained rangebound between $121.50 and $124 over the past 7 days.
The recent downtrend in iron ore prices paused this week on hopes for a potential stimulus package by the Chinese government. However the crisis in Europe continues to weigh heavily on China’s steel complex. And as the week progressed China came out saying that they did not intend to roll out a significant stimulus package and we saw more offers come in on the futures. Overall, a mixed picture as we head into the weekend. We expect that Iron Ore prices will continue to be heavily influenced by macroeconomic events in Europe and elsewhere.
Scrap Prices Expected to Drop Sharply
Despite commodities having their biggest monthly declines since 2008, ferrous scrap has yet to budge. But that is going to change in June. Ferrous scrap prices for June are expected to drop by anywhere from $20 to $50 per ton.
Export scrap yards along the U.S. East Coast have already dropped their buying prices $30 per ton so far this month, but Turkish scrap buyers remain uninterested as weak Turkish steel demand remains the problem. Additionally the rising U.S. dollar and weakening Euro make European scrap a cheaper alternative to U.S. scrap for the Turkish buyers.