Futures

Hot Rolled Futures: Good Riddance to that Story

Written by Andre Marshall


The S+P has stumbled in the last week, if you can call retracing 1.5% off the highs in a 175 percent 6 year rally stumbling! As I mentioned two weeks back, we were likely to test resistance at 1800 for a bit before retracing slightly. Since this market doesn’t even recognize retracements anymore, we didn’t bother, we just went right through it to a high of 1812.50. We are last 1784.5 at the close today. 1775 is an important support, and if breached, will cause, dare I say it, a retracement probably to the 1688 zone.

In commodities, in general, we have had short-cover rallies. In Copper, we closed $3.258/lb up from the $3.14-3.175/lb range we were in two weeks back, or a 3.25% rally from the lows. In Crude, we closed $97.34/bbl up 6% from the $91.77/bbl low we put in a week back. I had thought we would hold the $94.5/bbl zone, but we didn’t, however, the push lower appears like it was short-lived, at least for now. We have also seen an impressive rally in Nat Gas. In part, traders squaring up short bets before the yearend are causing the movement. Ever increasing lack of liquidity in commodities, due to Dodd Frank regulations pushing banks to the sidelines, is exacerbating some of the moves. Today Deutsche Bank announced their departure from commodities. Deutsche, even just a little over year ago was one of the biggest financiers of metal in the world, so their exit is a significant example of the effect of new regulation on the banking industry, now affecting our industries.

Steel:

I am glad to see an end to that TK story. Wow, was that getting old. After all the conjecture, it looks like we have a new owner with the same slab supply that the facility had before, but maybe at even more attractive terms for the mill. I find it interesting that so much attention was directed to that story when not much has been paid to AHMSA’s new capacity just south of the border, over 2 mln tons, or Nucor’s new DRI facility, sure to ramp up sometime in the New Year. Looks like the competitive landscape in the south will continue.

In futures, we had a decent week of 840 lots or 16,800 ST. Trades were spread out all through 2014 with Q1 having traded either side of $655/ST, Q2 either side of $638/ST, Q3 either side of $633/ST and Q4 either side of $630/ST. The sellers have started to reappear as the spot market looks like it has stopped climbing and the demand picture looks to be a bit more in question. CRU came in $670 unchanged from last week. SBB has even reported down $5/ST on spot in their transaction capture. From a demand picture standpoint, a number of suppliers reporting auto is not quite as robust as it was even a few weeks ago, at least at the steel level. Looking at auto data, we have gotten somewhat conflicting reports with November sales up 12-14% to 16 mln unit rate, while Ward’s has released their inventory data reflecting 76 days inventory industry wide, a record high since 2005. It appears that auto companies are having to start rebating to move vehicles, average of $2,500 per vehicle in November. In the meantime, upstream may be suffering a bit. That said, lead times remain healthy for now.

Iron Ore:

Iron Ore continues to hold up on price even rise a bit further. We are last $139.7/MT on the index. Market continues to be backwardated and volume continues to be healthy at $1-2 mln MT /day. Let’s call December ‘13 either side of $138/MT, Q1 either side of $134.25/MT, Q2 either side of $126.75/MT, Q3 either side of $122.55/MT, Cal ’14 either side of $125.5/MT and Cal ’15 either side of $112.69/MT.

Scrap:

On the CFR Turkey front, the spot index price has stalled at $393/MT as the replenishment ahead of the Russian winter supply issues has ended, and the Turkish steel demand picture has not improved. Not expecting any further change in this market unless Iran’s efforts really do result in easier sanctions which causes some unexpected pent up demand.

On the domestic front, December appears healthy for spot transactions as existing lead times and modest supply keeps prices healthy, whether you think that is up $10/GT or up $20/GT. On the futures, we are gaining interest as bids and offers have materialized. We are currently $420 Bid Q1, $415 offer Q2, and $420 offer Q2/Q4. All for decent size.

Note that there are interactive graphics below (one for HRC Futures and one for BUS futures) for those users who view this article on the Steel Market Update website. Also worth mentioning: on the Home Page of our new website is a section dedicated to hot rolled and scrap futures. The forward curve which is shown on the front of the Home Page is updated daily. You no longer have to search the CME website or hound your broker in order to get daily changes as they are posted on our Home Page.

{amchart id=”73″ HRC Futures Forward Curve}

{amchart id=”74″ BUS Futures Forward Curve}

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HR futures: Nucor’s price cut makes its mark on steel markets

When we were asked to provide some additional commentary to SMU about the futures markets for flat rolled, our only reluctance to contribute was rooted merely in the fact that SMU (1) already offers an excellent array of authors on this topic and (2) a concern regarding what new ground could be covered that hasn’t already been discussed to death on this issue. Thankfully, however, Nucor has offered up something we can describe, without hyperbole, as simply revolutionary for spot pricing in flat rolled - a development that we simply could not resist commenting on with respect to its probable impacts on the futures market.