Hot Rolled Futures: Minute by Minute

Written by Andre Marshall

The following article on the hot rolled coil (HRC), busheling scrap (BUS), iron ore and financial futures markets was written by Andre Marshall, CEO of Crunch Risk LLC and our Managing Price Risk I & II instructor. Here is how Andre saw trading over the past week:

Financial Markets

Well, the last time we spoke the market was threatening to take out the old high 2119.75 on the June future, and sure enough we have, with the market last 2128 and a new high of 2132. I must say I’m very comfortable being long here as I see the willingness of the Fed to continue to maintain its easing posture with a new unemployment target of 5.1%. “Well!” if you’ve read any of my dittys over time you’ll know that I think there is something very concerning about this statement. Contrarian trader mindset that I have, being comfortable being long the market is a real red flag. So, I will repeat what I said last time. I think the next target is 2250 on the S&P active future, but I wouldn’t be surprised if some news event triggers a big sell off here somewhere in the near-term. Underlying trend support now is 2087.50, but I suspect we will be testing that shortly before a move to those higher levels can be attempted.

In Copper, and other base metals, we have retraced about 3.5% in this similar timeframe as the news out of China has underwhelmed. We are last $2.8585/lb. on the July future after having set a recent high of $2.9575/lb. The $3.00/lb. mark was always going to be a tough psychological threshold that would be hard to cross. We’re prob. are headed to test support trend at $2.78/lb. area before we can muster another rally, or maybe we have tested $3.00/lb. and are done. It’s hard to tell. In Crude, a similar story except for we have already broken support and are last $60.69/bbl. after a recent high of $63.62/bbl.. Since we’ve already broken recent trend support I think the market will want to retrace half of its rally from the low of $46/bbl., or the $55.65/lb. area, before attempting to travel higher.

Hot Rolled Steel

This week we traded 1110 lots of 22000 ST with 780 or 15,600 of those trading today on Cal ’16 @ $538.25/ST (short or net ton = 2000 pounds). This is down from the last trade on Cal 16 by $1.75/ST. Meanwhile we traded Q3 lower at an average of $512/ST, which down $3/ST and Q4 months have traded at $520-522/ST zone. Meanwhile the CRU came in at $455/ST up $4/ST as the price increases the average price paid albeit slowly.

Now the reference to Minute by Minute is not a nod the Doobie Brothers song namesake, although we are definitely still “holding on”. Rather it is to the fact that the market appears to be watching itself literally minute by minute. I’d say the perspective is still one of pervasive bearishness. This is true if we are talking about reporting on inventory, sales, price, or scrap, and, for me, that’s a red flag again. I suspect that within the next few weeks some of those data points that people are pointing to could change quite quickly, i.e. inventory, lead times, scrap inventory levels etc. For instance, one reference is to the concern that steel prices “shouldn’t rise much further” for fear that it will just invite imports. Actually imports are still profitable at current levels, but talk of trade cases, or even the threat thereof, has scared most of that liquidity away. The import interest does not come back just because prices here rise as trade case fears will still be here. So, just like me being to foolhardy long the stock market at close to all-time highs, I would caution everyone from being too foolhardy short in what could set up to be a pretty nasty bear trap.

Below is an interactive graph of the HRC Futures Forward Curve. The graph can only be seen when reading this article while logged into our Steel Market Update website:

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

Iron Ore

This market has sustained its pricing. We are at the tail end of a short term tightness in supply caused by “overbearishness” = too many shorts and lower inventory, which resulted in a rally from about $46/MT low up to $62/MT ish on the index. We have since retraced back to $58/MT zone on the index. In the last 24 hours, we’ve actually started a little rally so it remains to be seen what Iron Ore wants to do here. We are last either side of $55.00/MT on June, $54.50/MT on July, $53.50/MT on Aug., $53.75/MT on Q3, $51.50 on Q4, and $48.00/MT on Cal ’16.


Here’s another area where everyone’s pretty bearish, and I just don’t think it computes. Supply on obsolete is still anemic. With lead times pushing out at some mills, inventory will matter at some point with a lack of shred in the system, and no one seems to notice the Turks are happy to pay levels that $30-40/GT above our market. East Coast yards are quietly printing some profit, leveraging bearishness here into willingness there. In May, we were sideways MW Bush, which meant slight up on average across qualities and locations for everything else, with MW being the most depressed market in relation. This month I’d think we’ll see up $10-30/GT depending on region and type. Instead of upward movement here a lot of people are calling for downward movement internationally to address the obvious disparity between the two markets. Again, market is just too comfortable being bearish.  

Another one of our interactive graphs is below with the BUS (CME Busheling Scrap) forward curve.

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

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