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 financial, iron ore, scrap and steel markets and the results of trading on the HRC and BUS Futures markets over this past week. 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.

Financial Markets:

Well the S&P 500 is at new highs again. No surprise there. As I mentioned we were headed up to the 1900 zone, which we readily dispatched and have since reached 1918 today on the June future. As I mentioned previously 1960 is our target, and we probably should have a 1-20 point pullback right about here before reaching that target. 2000 has been a long time psychological target and basis current levels I have no doubt that that will be tested before this is over. Emerging markets have taken it hard of late especially in places like China and Russia, and this just fuels the domestic market as money returns home to safer risk appetite. No start to a bear market today anyway.

Copper is uneventful ranging in the $3.145/lb. to $3.185/lb. zone since early May. This still keeps intact the rebound rally from the March 19th lows at $2.872/lb.m but we are still aways away from the resistance line started at Copper’s highs at $4.35/lb in 2012, which today would be around $3.40/lb. The market here has priced in China malaise and has gotten itself long in anticipation of improvement in that picture. If these traders looked at Iron Ore they might think otherwise. Gold has broken down in the last few days last $1255/oz on the June contract. There is no support between here and the Dec 31st low at $1191.50/oz. As long as the stock market is remotely bullish, Gold is toast. Meanwhile Crude’s rebound from the Jan 9th lows at $90.40/bbl is intact ending today at $103.54/bbl. The chart looks constructively bullish with a new recent high set on the 23rd may at $104.50/bbl., and support below now right around $110/bbl.


We had a modest 464 lots trade in this holiday 4 day week, 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.


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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