Futures

Hot Rolled Futures: And Here We Go...

February 27, 2014

Financial Markets:

Two weeks back on the 13th the S+P 500 was approx 1825, and, as I mentioned, headed to test 1846 again. We bounced of that 1846 on the 19th only to retest it again on the 24th with better results, reaching our 1858 all time high. Since then, we are essentially sideways in a 1840-1854 range, and looking likely to head higher still to test 1900. We are essentially a hair away from the 19th’s all time highs, and I’m pretty sure we are already today at all time highs in DOW or NASDAQ and such. Who needs commodities, or an opinion on their direction, when we have the stock market. Just buy the stock market and make money. Lest I remind anyone, of course, we are at all time highs.

Steel:

And here we go, the market now correcting in earnest. Despite reports of decent lead times at integrateds, clearly some mills are cutting deals and bringing the price lower. With scrap getting little support from the export market, and steel production along with steel imports overpowering demand, we have a buyer’s market again. I will note that this has not been the case for 9 months, so it is not really a surprise, and likely just starting, particularly with imports part of the landscape.

The steel futures have been very modest again this week with 160 contracts or 3200 ST trading. This is a case of the buyers are waiting for the spot price to lower further and the sellers not willing to reach much further down. However, the market has come off pretty quickly in this week in the Q2 period, having dropped from $625 to $617 settle today. The Q3 and Q4 have not moved really in that timeframe although offers are lower than they were a week prior. Meanwhile, the CRU price dropped $11 to $638/ST.

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

Iron Ore:

We have started to see some cracks in this market. We breached the $120/MT support, and are last either side of $118/MT on spot and $115/MT on Q2’14. The spot price is likley headed to $110/MT or lower as the inventories in China build. In the corse of 8-10 weeks we literally have gone from historical lows in inventory to historical highs. This coincides with high intentories in rebar and in coil steel. Besides Q2, we are either side of $113/MT on Q3, either side of $112/MT on Q4 and either side of $109.50/MT on Cal ’15. We expect the back end months to start to hold here as the front end continues to drop on what appears to be a not so robust China economy. Can anyone say “currency wars”?.

Scrap:

CFR Turkey has stabilized from its $347/MT low to rally back to $353/MT. The spread to billet got wide enough to draw some buying back in, and with an approximately 15% drop from the highs in this market, it makes sense that we are at a bottom, or near so. However, this bounce is likely little solace to our scrap market as replacement costs for the East Coast yards relative to last sales are still considerably lower than Feb scrap levels. For those in the optimistic camp, we are looking at level for domestic shred/bush in March, and for those expecting scrap export and steel prices to dominate the discussion, we are looking at 10-15 down for March.

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