Futures

Hot Rolled Futures: Global Markets Fail

Written by Andre Marshall


Andre Marshall, CEO of Crunchrisk, LLC and our Managing Price Risk I and Managing Price Risk II: Strategies & Execution instructor penned the following commentary on the iron ore, scrap and steel markets and the results of trading on the HRC and BUS Futures markets over this past week (as of May 29th). More information about futures can be found on our Home Page and elsewhere within our website. For those interested in learning how to apply a proper hedging strategy and then executing trades to obtain the desired result we recommend our Managing Price Risk II workshop. The next workshop will be held in Chicago on June 24 & 25, 2014. Details are on our website.

Steel:

We had a modest 464 lots trade in this holiday 4 day week (through May 29th), which really was a 3 day week with most people mentally out Friday and out Monday. That’s 8480 short tons for the week. The market has met a floor for now at the $623-625 zone pretty much August 2014 on. June and July are also under pressure and would reflect it if a decent bid were to materialize. Most of the activity has been in the Q3/Q4/Q1 periods. We are about $12/ST below where we were two weeks back on Q3 and a $3-4/ST below on Q4. The CRU came in at $683/ST down another $2/ST.  Market softer, but not because of any deals happening yet.

The following is the SMU interactive graph for hot rolled futures. The graph can only be seen when reading the newsletter on the SMU website. Otherwise, it is just white space between this and the comments about iron ore. If you need help learning how to use our interactive graphics please contact Brett in our office: Brett@SteelMarketUpdate.com or 800-432-3475.

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

Iron Ore:

Is sick! Just no other way to state it. We are last $95.70/Metric Ton on the spot index and the forward, albeit flat, is a miserable $95/MT pretty much out though 2015. The market you might recall was $107/MT on the rebound rally which initially dropped to $98/MT zone to rally back to a $100/MT and now down to $95/MT. The fact that the backwardation has dissipated as the front end has dropped suggests that $95/MT could be the new normal mean revert. Some are expecting the front end to drop to $85/MT before it’s done. The Chinese economic data of late has been poor with housing sales dropping 7.7% in the first quarter, and auto sales growth dropping to a 7.7% rate versus last year’s 11% rate. Concerns over China’s exports levels have added to the concern. We literally are either side of $95/MT all the way through June 2015, from there through Dec ’15 we are just below $95.50/MT with Q1 ’16 at $97.25/MT and Q2/Q3/Q4 ’16 at $98.00/MT.

Scrap:

Although shred came off somewhat for May, Busheling really was sideways at down $2/Gross Ton, and for June expectations are for lower, whether you are in the down $10/GT or down $25/GT camp. Probably again a little bit worse for Shred than for Bush.  Probably looking at $365-$380/GT basis Bush depending on region and where mini’s (EAF mills) are on inventory. Meanwhile, exports off East coast to Turkey have been ok and held in the $370-375/MT CFR Turkey basis. BUS and CFR Turkey scrap are essentially offered on futures just below spot levels.

Below is another one of those pesky interactive charts. Ditto what was mentioned just prior to the HRC Futures graphic above.

{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.