Written by: Andre Marshall, CEO Crunchrisk LLC

Economic:

Well the trifecta is in! After Europe announced its QE last week, and China followed with its infrastructure program (how much is new is still debated), we received today the Fed’s wisdom to help the economy further. The Fed has essentially promised three main components as far as the market is concerned:

·         Restart of “Operation Twist”, buying the back end of the government bond market by selling the near end to fund it,

·         Mortgage Backed Security purchases totaling $40 bln per month, and maybe more importantly they will do so “indefinitely” until the economy improves,

·         And lastly they changed their language to state that they would keep interest rates low until mid 2015 instead of mid 2014 (this may be more a tantamount acknowledgement that we are in a world of hurt).

Markets are at their highs, the SP is up 23.50 pts, Copper is up 4 + cts and Gold is up almost $35/oz. Surprisingly the USD only dropped about 50 cts. Could this be a warning sign? For now market pressure looks like it is upward. There will probably be a lag effect of buying from the retail market.

Hard to imagine what drives the market from here now that this ship has sailed. Volume only just picked up in the last few days after having been terrible for 3 months. If the pattern stays intact we will see continued increase in volume for the next week, which either means a rush to buy the market or a big correction is right around the corner.



HR NYMEX:

The balance of 2012 has weakened again back to either side of $600/ST. While 2013 has remained in the $620/630 range. This week was decent on volume. For the week we transacted 936 lots or 18,720 ST in two trades. Otherwise it’s been quiet. Buyers are watching the spot market closely to see if better opportunities are coming, particularly with the surprising downward move in scrap. The CRU printed $649/ST on Wednesday down $8/ST. Now that the strikes are settled, the support for price rises, or worry, has abated for now. With so much stimulus being employed again, we will see how the market reacts in the near term.

Billet:

NYMEX: This market suffers for lack of bids as The Turkish market has weakened and the drop in scrap has removed the floor in price. The Sep contract settled $540/T and the forward months are all flat either side of $523/T. Offers continue to drop on few bids with the balance of 2012 and first part of 2013 offered at settlement levels.

LME: This market reflects the woes of MENA and the global scrap markets with Cash settling today at $333/MT and 3 mos settling at $347/MT.

Raw Materials:

TSI Iron Ore:

Iron Ore had a wild week. After testing the lows the week prior at $86/T area, the Chinese announcement on infrastructure spending caused short covering bringing spot prices up to $110/T. The forwards moved similarly. Since then however, as people started to question the amount of real new spending, the market has retraced back down to $96 by today. The market is flat to slightly contangoed into 2013 as we speak. Debate continues on whether this market will test the lows again. It will depend on to what degree supply reacts and removes capacity, and how many shorts are still left in the market. The debate continues.

Scrap has surprised to the downside:

CFR Turkey

After having risen to $415/T high on that last big round of Turkish buying we have steadily shed price week after week on this contract as the situation in MENA continues to deteriorate and the onslaught of imports, from places like China, start to take their toll there. CFR Turkey is now down to $380/T today. Buyers are still scarce until improvement on the ground materializes. There has a been a slight improvement in export to China and Ida from U.S shores but not enough to counter the effect of this important outlet.

NYMEX/AMM Index

In the U.S., most had expected sideways to up instead of the down $30-35 we received. I had actually wagered that we would be down if for no other reason than it appeared no one thought it a possibility and the strikes were ending. The degree of the move is surprising however, or maybe now we are understanding to what degree the strike concerns caused prices to inflate to begin with.

The big news of course is that the CME/NYMEX has started a No 1 Busheling contract basis the AMM Busheling Ferrous Index (look below Consumer Prices). 1 Lot traded on the exchange on Monday to get it started. The market has been either side of $370/T for Oct and backwardated down to mid $340/T area for end year. These are just indications for the moment as even those who would like to trade it are not yet signed up. Please reach out if you’d like to learn more on how to get set up to trade this contract.