Written by: Andre Marshall CEO Crunch Risk, www.CrunchRisk.com

WOW, IS THIS THE STEEL FUTURES MARKET ?

Looking at the HRC Futures screen today one almost doesn’t recognize it. Why? The volumes have ballooned. Where before one might see 5 to 20 lots on a bid or an ask the range is now mostly 20-100 lots a side throughout the forward curve, or 400-2000ST a side. Something has definitely changed. I’d like to think that giving my fist steel seminar to SMU customers two weeks back in Chicago turned the tide (we have two more planned: September 29th in Chicago and New York City November 2nd at the NYMEX), but I’m afraid it’s just coincidence.

I have noticed that a number of banks and brokers have been getting into steel futures to try and serve what clearly now is a mainstream interest from the steel industry in using steel hedging to manage costs. This was readily apparent back in June at the Steel Success Strategies meeting, and the MSCI meeting this month, from the high turnout at my seminar with John Packard (Steel Market Update), and I have no doubt will be so at the CRU meeting coming up in the fall.

Today’s market gives plenty of kindling to provide liquidity as the points of view continue to vary greatly in a market that may be bottoming shortly or about to really collapse. For every buyer that wants to start layering in purchasing on the forwards there is another who is trying to protect inventory. The market appears to have really moved to a new level of liquidity. I believe it won’t be long before investor/speculator interest picks up in earnest in this market, something that will be a big boon for those who want to use steel futures to manage their price risk.

NYMEX Hot Rolled Coil (HRC) Futures

HRC Futures have been fairly busy in a declining fashion. Whereas we had high 700’s bid for months in 2012 last week the market has been steadily ratcheting down this week with the last trades today happening around 735-740 for Q1 and 680 and 685 for Aug and Sep 2011. To my point about more significant size the August trade today was for 100 lots/2000ST. The bearby months are now solidly in the high 600’s whereas they were trying to hold on to the low 700’s last week. Calendar ’12 levels although not yet traded in earnest are now straddling $750/ST. We’re getting closer to real buyer interest levels, but not yet there. In the spot market the chatter says that those who are interested in at least 5,000 Short Tons can get metal between $640-$670/ST and there may even be some better deals than that. Hopes are hinged on scrap holding up. The range for prime for August is coming in from slightly down to down $30-$40. Most feel scrap will hold pretty well. I think it might surprise to the downside as mini’s orders just won’t be there.

LME Billet

The Billet market has been quiet this week. The calm after the storm? After apparent tightness on the front end that took cash up to $630/Ton, the cash appears to have barely traded while the 3’s months also has had little volume. At one point this week the 3 months market was $45 wide at $555/$600, Yikes. Today small bidders appeared at $595, but something suggests this very strong rally in billet must come to a closure.

One thing certainly seems odd, $600 billet and $685 HRC, that can’t last. Secondary scrap has been holding steady, but I suspect too it will be headed lower as well as the Turks appetite will wane. They’ve come in for two cargos off our shores and some are suspecting two more, but there are real rumblings about the health of their economy and their surrounding neighbors. Tightness of supply should continue on secondary with lack of demolition and tightness in auto body supply, but Turkish demand has been what’s driven these relatively high scrap levels, and that may be at an end for now.