Hot Rolled Coil Futures Tumble – Q4 below $680
Apr / 20 / 2012 - Hot Rolled Coil Futures Tumble – Q4 below $680
Written by: Joseph Reinmann, CEO Kataman Metals
If the futures market was a voting machine, then the results are official – the mill price increases have failed.
Hot Rolled Coil (HRC) futures prices on the CME declined this week as buyers evaporated leaving the sellers stranded. Q2 2012 prices decreased $7 per ton to $682 while Q3 decreased by $10 per ton to $680 and Q4 fell the sharpest -- dropping $17 per ton to $678.
Volume on the CME U.S. Midwest Hot Rolled futures contract was steady as 319 lots traded (6,380 tons) over the first three days of this week. Volume seems to be picking up as prices slide, indicating that the longs are looking to exit at any sign of a bid. Bids on the CME today range anywhere from $615 to max $665 for the May through December trading months.
Q2-2012 at $682 (Down $7); Q3-2012 at $680 (Down $10) and Q4-2012 at $678 (Down $17).
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 Spot Price Drops $24.50 per MT
The LME cash billet market settled yesterday at $476.50 per metric ton yesterday down $24.50 per ton from last week.
The three month LME steel billet price settled yesterday at $510 per metric ton down $5 per ton versus last week.
As we’ve said before in this column, we need to see LME Billet prices above $550 to be assured that we are entering into new bull territory. Instead the LME Billet headed into bear territory this week falling below the $500 support level.
Iron Ore Tops Out
After reaching a high of $150 per MT last week the physical market seems to have topped out this week with an Australian tender that traded down $1.50 to $148.50 for 62% grade ore. The paper market has softened slightly this week after hitting yearly highs last week of $145.50 on Q3 and $132 Calendar ‘13. We still have mixed signals coming from China regarding where prices will go in the medium term for iron ore. On the one hand steel production last month in China was at an all-time high, which is bullish for iron ore but with steel prices in China softening and demand not yet very robust can these high production rates last?
Traders remain cautiously optimistic for the medium term. With credit easing in China and the need by Chinese Government to prevent a hard landing with the upcoming transition in power in November, some expect iron ore prices remain stable with an upside bias as we carry on through the spring -- which has traditionally been a good period for iron ore pricing.
Iron Ore basis TSI Forward Curve
May 142.75 / 144.00
Jun 140.50 / 141.50
Q3 139.50/ 140.00
Q4 135.50 / 136.50
Cal 13 128.00 / 130.00
Is Scrap the Next Shoe to Drop?
With HRC, LME Billet and Iron Ore prices all dropping this week, there is sentiment building that scrap too will succumb in May to the bearish trend. This week the Turkish steel mills buyers of scrap have all gone quiet. Worse still is news that Turkish long-steel producers cut rebar prices by $30 per ton this week. These producers were margin deficient before this recent price drop. Who can afford to pay $450 CFR Southern Turkey for HMS #1/#2 scrap when the LME spot billet price is $476.50? Based on historical scrap-to-billet conversion spreads, scrap looks to be about $30 to $35 per ton too pricey.
