Hot Rolled Futures Prices Seesaw on Thin Volume
Written by: Joseph Reinmann, CEO Kataman Metals
Prices this week on the CME U.S. Midwest Hot Rolled futures contract dipped nearby and inched higher for 2013. HRC settlement prices decreased $4 per ton for the second half 2012 and increased $5 per ton for the first half 2013.
Volume on the CME U.S. Midwest Hot Rolled futures contract was light this week as only 3,000 tons (150 lots) changed hands through yesterday’s close.All of these transactions took place in the second half 2012.No trades in 2013 were transacted as the looming U.S. elections, European financial crisis, and fears of a fiscal cliff are creating too much uncertainty.
In China, Shanghai rebar futures and benchmark iron ore prices both moved down sharply this week as the outlook for China’s steel consumption dims.
Amidst all of the global uncertainty, U.S. steel mills seem to be pondering another round of price increases. We’ve seen numerous press reports this week that more price increases are likely on the way, but the futures market isn’t pricing in any signs of that. With China, the world’s largest steel producer, cutting prices it is surprising to see U.S. steel producers bucking the trend and raising prices. Setting steel prices in the United States at prices higher than the world market is likely to once again invite a flood of steel imports in a few months.
Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each individual month through q2 2013 as compared to last week:
LME Steel Billet Holds Steady
The cash price of the LME Steel Billet was trading at $390 per metric ton today , which is near the $393 July month-to-date average, but higher than the June average of $362.
The steel billet 3-month price was trading at $410 per metric ton today, which is near the $413 July month to date average, but higher than the June average of $401.
In the past, the LME steel billet was a leading indicator for predicting the next directional move in scrap prices but the relationship between billet and scrap has become de-coupled the past few months. Case in point: LME Cash went up $30 per ton in July while scrap prices fell $40 to $50 per ton.
Iron Ore Gets Hammered
The recent support in the iron ore market of the past few months finally gave way last week as prices broke to the down side. This past week has seen a staggering drop in both physical prices as well as price across the futures curve. The major indices all broke the critical support level of $120 per metric ton this week which has held all year. The most actively traded futures contract, August, traded down $11 week-over-week to $112.50, down more than $17 per ton over the past 4 weeks. It seems that the recent buying appetite by the trade rather than mills over the past month has ebbed and the mining majors were left to offer ore delivered China lower each day. Rumors of very low sales out of port stocks were heard further exacerbating the downward pressure on spot prices. After a record first half in steel production in China it seems that the lack of domestic and global demand has begun to take effect as Chinese rebar prices have continued to test historic lows this past week. The last time Chinese rebar prices were at the current levels iron ore was trading at $70 (spot today is at $119). Sentiment remains extremely bearish, however, we are now at levels where in the past few years China has come in as aggressive buyers, so some are holding out hope that a bounce could be around the corner.
Scrap Prices on the Rise
Scrap prices bottomed out in early July and are poised to move higher. Some mid-month prices have already increased $20 to $25 per ton off of the early July lows. August prices could increase an additional $20 to $25 per ton from here making the aggregate change from July’s low point to August levels $40 to $50 per ton. This would essentially negate the price decrease in July and put scrap prices back to June levels. Mills will likely try to use this upcoming scrap price increase as rationale for further increasing steel prices, despite the fact that mills raised prices in July even as scrap prices fell.