Hot Rolled Futures: Risk Off

Written by Andre Marshall

The following HRC futures article is written by Andre Marshall, CEO of Crunchrisk, LLC and the instructor of our new Managing Price Risk 2 – Strategies & Execution workshop.

Well the S+P 500 took a turn down starting Thursday and Friday of last week, dropping from 1850 down to a 1770 low yesterday. We have recovered a tad today, last 1794. One can never tell what triggers a market to sell off, if you can call 4.3% a sell off. It might have been the miserable jobs report, or concerns coming out of China concerning their growth and the banking system there, or the continuing tapering by the Fed. Take your pick. Usually a market will have been well overbought when it decides to find excuses to sell off. From here, the S+P will need to breach 1810, the mid-way point of the fall, to find legs to test the 1850 level again. If it fails then we are headed to 1720-1750 as initial support.

Well its generally risk off in commodities as funds and investors pull back while they see what the effects of the tapering here are and what the growth situation in China is. To say that our economy is ticking along is old news and frankly not bullish since it’s old news. The malaise in Europe and the concerns over China and the concerns over the emerging markets are weighing on sentiment and forcing traders to sidelines. CTA’s are even short a number of commodities. In Copper, we are last $3.238/lb on March contract. This is down from $3.4660/lb high back in the beginning of the month or a 6.5% retracement. We’ve had little attempt to rally in that decline.

In Crude, we are last $97.95/bbl on the March contract, that is up from our lows put in on Jan 9th at $91.24/bbl, but a 2.7% decline from Dec 20th highs at 100.75/bbl. Crude is basically in its test retracement mode and it will be important to see if it puts in a lower high here on this rally or attempts

to take out the $100.75/bbl level. Gold meanwhile is last $1243/oz up from its Dec 31st 1182 low, but still 13.3% below it August 28th $1434/oz high. Gold has broken its approx 1260 resistance above, but has gone down since so not sure what it wants to do here. Definitely a sidelined metal for now.


A very quiet week in steel futures as the buyers have all but disappeared. We traded a tiny 142 Lots or 2840 ST. Except for Feb and March, the curve is pretty much flat either side of $630 the whole way out. Problem is buyers are nowhere near those levels with interest resting in the low to mid $620’s. Sellers might reach for levels if they thought they were anywhere close. Feb and March meanwhile have buyers, but sellers are too nervous to trade at these levels. Feb is at $658/ST and March at $639/St respectively and have traded in that zone. CRU came out at $672/ST down a few dollars, but word out there is that spot is almost non-existent as buyers receive steel previously booked metal and imports start to arrive. Inventories appear to be building quite quickly all of a sudden.

Below is an interactive graphic of the HRC Forward Curve. The graph can only be viewed when reading the newsletter on the SMU website. You can do that by clicking on the “Read Full Text” link at the top of the newsletter and then logging in (or, if you are already logged in you will go straight to the full text as normal). If you have not yet logged into the SMU website and are unsure of your log in information we can assist you. Send an email to: info@SteelMarketUpdate.com and we will provide you with a new, easy to remember, user name and password.

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

Iron Ore:

Chinese New Year is just starting so Iron Ore should be quiet and drifting. We are last $122.60/MT on the index and the decline has started to slow as we have gotten closer to the psychological $120/MT zone. All the typhoon inclement weather, and inventory restocking drivers have passed and now we are back to fundamentals of steel in China. On that basis, we are drifting down as demand is not enough to keep pace with supply despite a very robust and growing auto market. Expectation is for further declines in this market as production continues to outweigh demand, which may be exacerbated by the government’s insistence on closing older polluting mills. Mills in China also are not making any margins at these price spreads. We shouldn’t hear much on Iron Ore until after the new year is finished. Check back in about 15 days. Let’s call March either side of $120/MT, April either side of 118.50/MT, May either side of $117.85/MT, June either side of $117.00/MT, July either side of $115.25/T, Q3 ’14 either side of $114.25/MT, Q4 ’14 either side of $113.00/MT and Cal ’15 either side of $110.00/MT.


Looks like lack of exports starting to really impact the scrap market as is the waning appetite from mills here. Looks like we will see between $20/GT and $30/GT down for Mid West BUS basis early indications into a range of $410-425/GT. The East coast yards have been choking on inventory as the Turks have been absent from our shores and some of that material is now competing against mid-west material as mills take it in back off the coast. Other mills have also cancelled orders knowing that prices are headed lower. Some are putting a positive spin on March for once the excess clears out, but with a drop happening during such an inclement weather period it’s hard to see how warmer climes will translate into a rebound market.  CFR Turkey is no better and drifting down. We are last $385/MT now having come off $2/MT today alone. Their market there is just very quiet and spreads do not compute for steel making, at least not with our scrap price levels here. More malaise expected for now.

Below is an interactive chart which can be seen when viewing the newsletter on our website (must be logged in).

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

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