Written by: Joseph Reinmann, CEO Kataman Metals

Forward Curve Eases Up

Settlement prices on the HRC for the nearby months declined this week reflecting continued weakness in the physical HRC market. The average HRC settlement price for Second Half 2011 on CME fell this week by $10 per ton to $724 from $734 last week. Over the past two days bids for 1st Quarter 2012 HRC have also started to decline and are lower by $15 per ton to $770 than just two days ago when a large trade was consummated at $785. 6,720 tons (336 lots) of HRC futures traded on the CME U.S. Midwest Hot Rolled futures contract so far this week. The majority of those trades were done early in the week before the futures market started to retreat. 5,000 tons were traded Tuesday for 1st half 2012 at $785 per net ton which is actually up $5 per ton from last week for the same time period.

Opportunistic sellers were able to secure $785 per ton price for January through May of 2012 despite a physical spot market reported to be as low as $680 today. The forward futures sellers at $785 were likely to be taking advantage of the cash and carry trade opportunity we highlighted in last week’s column. Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month in 2011.

LME Billet Price Range bound Again

We were wary of what looked like a breakout in prices last week on the LME Steel Billet cash settlement price which had soared last week to $609.50 per metric ton. In fact, cash settled as high as $628.50 yesterday but don’t get too excited. What we learned is that the cash price increase was a technical squeeze not a fundamental shift to a higher trading range. Traders that were short needed to bid up the cash settlement price to secure units to deliver against their expiring shorts. The three month LME Billet price traded today at $575 which is back to within the $550 to $600 trading range that the LME billet has remained since January. We’re still in the same place we’ve been since January. So to sum it up, the price action above $600 was technical and not fundamental and has not proved to be indicative of an actual resurgence of demand for long products in Europe and the Middle East. We’re still in the same place we’ve been since January.