Futures

Iron Ore, Scrap Futures Face Uncertainties

Written by Bradley Clark


TSI Iron Ore: Prices Stay Firm, Future Is Uncertain…
 
After breaking through the psychological ceiling of $140/ ton a couple of weeks ago, the iron ore spot market has retreated ever so slightly to $137. While this is not necessarily an indication of a reversal in the pricing trend, it may shed light on some cracks in the markets strength to move higher in the short term.

The futures market remains backwardated with Q4 trading around $130 and calendar ’14 at $117, traders continue to price in a fall in prices. Freight rates continue strengthen which is supporting the delivered China price for ore and demand from mills seems healthy so a significant drop in iron ore prices is not a fore gone conclusion but the market today does feel a bit toppy at these levels.

Volumes on SGX remain very strong.

U.S. Midwest #1 Busheling Ferrous Scrap (AMM) Lack of Activity Prevails
 
The busheling futures contract continues to struggle with liquidity as the market continues to experience low volatility. No trades have been reported the past couple of weeks and values down the curve remain unchanged with Q4 at $390, Q1 $385 and calendar Q4 $390. With the physical market looking like it will come in down $10-15 on busheling, to $395-400 the curve continues to flatten out.
 
It seems that the lack of volatility over the past few months has thrown cold water on the impetus for physical users to enter the futures market.

Again, there have been no reported trades this past week.

Latest in Futures

HRC futures: ‘Normalcy’ not seen on near-term horizon

Over my years of observing the steel market, there's been a recurring belief that current market disruptions in either the physical spot market or steel futures are temporary anomalies, destined to fade, and that normalcy will soon return. However, the events of the first few weeks of 2024 served as a stark reminder that this expectation seldom materializes, and that the US steel market is still the most volatile steel market in the world.

HRC futures: Understanding and addressing HRC basis risk

It’s no secret that HRC futures have been particularly volatile over the past several years. The most recent instance was the outsized break in the March futures contract early this week. For companies procuring raw material in anticipation of higher prices or even to get ahead on future purchase orders from customers, understanding the relative price of that raw material versus the hot-rolled coil futures curve is important.

HRC futures: A flock of canaries in the mine

Much has happened since we last met on Jan. 4. Cleveland-Cliffs announced a price increase on Jan. 3, lifting the futures market in the morning only for it to finish the day $20-$30 per short ton (st) below those morning highs. On Jan. 4, the futures curve was down another $10-$28/st. And in my column for SMU that evening, I asked a question: Would those aggressive sellers be met with a short-squeeze forcing them to cover, or had the market peaked with the negative price action to start the year the proverbial canary in the coal mine?