Hot Rolled Futures – Objectives Cross
Aug / 03 / 2012 - Hot Rolled Futures – Objectives Cross
Written by: Andre Marshall, CEO Crunch Risk, LLC
On the back of mill price increases catching a bit - CRU printed $624 this Wednesday, which is up $7 from last week - and the scrap market rebounding back to its June levels, we have seen decent volume trade in HR this week. A total of 1588 lots or 31,760 tons traded in the week. Most activity traded in the 4th Quarter of 2012 and the 1st Quarter of 2013 either side of $645 and $660 respectively. The balance of the 2013 months have seen no activity as yet although both buyers and sellers are lurking and it almost traded this week.
LME Billet has eased again, this time settling $380 on Cash and $400 on 3 months. This is off about $10 from last week. Platt’s CME contract traded $535 for Sep in the week and was bid and offered either side of $535 for the 4th Quarter, so fairly flat curve here.
Scrap has sprung! It looks like by the time the dust settles we will have increase between $40-70/T from the July Low published numbers or about $15-45 above July’s ending scrap trade levels. Jury still out on how much volume will trade in the month though. A combination of factors here including drought and low prices in the mid west crimping flows, increased appetite from mills responding to slightly longer lead times, and excellent trading on the part of the dealers. Expectation is that Sep will be up slightly as well, and then demand matters again.
The spot found a floor at $116 , which is an important technical level over the last few years and sure enough buying caused a bounce. The back end of the curve also rose actually sending Iron Ore into contango. The spot price is either side of $117/T still and has been there all week, but the nearby future months have been very volatile with August up one day $2/T and down the next $4/T and so on. This market still feels like the rallies are based on hopes and expectations of what’s to come and the sell-offs on just plain reality.
For now there is a confluence of bullish activity in ferrous with Iron Scrap and US Steel all retracing off their lows, however, China’s economic health will dictate whether there is a bid for Iron Ore and whether the world will see more of their units getting exported. Further, data here from July suggest that consumer demand is waning and so too manufacturing activity is slowing due to that consumer demand and to reduced exports. Headwinds are still aplenty, but in the meantime a reprieve from the bearish trend.
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