HR Futures: WOW!

Written by Andre Marshall

The following article on the futures markets was written by Andre Marshall, CEO of Crunch Risk LLC and our instructor for our Managing Price Risk I and Managing Price Risk II workshops. Andre attended the SMU Steel Summit Conference on Tuesday and Wednesday of this week in Atlanta. Here are his comments about both the conference and the markets:

Comments from an awesome conference:

Wow! That was maybe the best conference I’ve ever attended, and I heard similar comments from everyone else.

Wow! Everyone is bearish, and I mean everyone! I didn’t talk to one soul at the conference who had anything positive to say at all, well maybe one. In the trading world, there’s a philosophy of trading that says that “if everyone has the same point of view, take the other side” i.e. be contrarian. The theory goes that for any trade, you have to have a buyer and seller, and if everyone wants to sell chances are the market is already pushed down below where it should be, looking for that elusive buyer (only buyers, in theory, would be speculators looking for a big payback i.e. a low buy level). Problem with this is, at some point, the price level reaches a point where the sellers die off because it’s even too low for them (i.e. $450 bid Q4’ 15 today, any takers?), but now, a lot of folks are short (short could also mean you  have to buy steel as a part of your business and haven’t been doing so) and if there is any sign of stabilization, or an increase, the next offer available for a buyer is way above, like a vacuum. That’s what’s at risk here in steel right now despite all of the data points to suggest much lower still.

Financial Markets

The S&P has had a volatile period of late testing 1831 a week back on that sell off only to rally since and start to form a floor for a possible rally back higher. We are last 1937 ish on the October future, and probably headed back toward the highs to retest. There’s been so much OMG (oh my god) news of late that it’s hard to see what could possibly shake this market further without wanting to work its way higher again – maybe a Grexit would do it…

In commodities, we have seen handsome rallies off the lows as shorts have covered (i.e. my point above in steel). In copper, we have seen a high of $2.4205/lb. on Sept futures v. the low of $2.2145/lb. a week plus ago or a 9.3% rally. This too with China out on holiday and expectations of higher levels still when the market returns from summer holidays. Copper has been coming out of warehouses on LME and SHFE, so whether intentional or needed is not yet understood. In Crude, we seen a 28.25% rally basis today’s high from the recent a week plus back. Same story shorts running for the hills as a slight change in sentiment forced the market much higher.


The week has been miserable in futures as the conference, the holiday schedule, and the sentiment have removed most participants from the markets. The remaining participants have been too far apart on price to culminate in trades. We traded 227 lots or 5140 ST in the week. The CRU came in down $6/ST to $449/ST. The futures have come off on mostly small screen trades and offers. We are sub $450 now on Sep, sub $455 now on Oct, sub $460 now on Q4, sub $477 now on Q1, and either side of $477 on Q2/Q4 of 2016. This is approximately $10/ST lower on the front and $5/ST lower than last traded on the back end. All that said if any size buying interest came in, we’d probably trade $10/ST higher right away as no one has conviction to buy or sell this market unless at an advantage to last traded.

Iron Ore

This market has moved up off its lows by about 14.50% as the Chinese port stocks continue to drop and the export levels out of Australia and Brazil resume a more modest pace than had been expected (hard to know if intentional). The Chinese have shut some steel making down around the WWII celebrations and so there may even be further buying once everyone returns next week. Same story as other commodities, market just got too short and shorts scrambled to cover. Will almost certainly run into resistance at $60/MT if the shortcover continues. Let’s call Sep either side of $55.35/MT, Oct either side of $52.65/MT, Nov. either side of $51.00/MT, Q4 either side of $51.25/MT, Q1 either side of $47.75/MT, Cal 16 either side of $45.60/MT and Cal 17 either side of $44.80/MT.


Holy scrap Batman! This is bad. So in a nutshell, the flood of Chinese Billet is killing Turkish appetite for scrap from anywhere. So without exports off East Coast it stays here. Further BOF’s are closer to 10% mix as other raw material costs lower than scrap and so not buying beyond what they get from Canada at better exchange rate, and minis lead times down to almost nil and little appetite to pull units. This is counterweighted (not really) by lack of collection on obsolete and probable slowing prime stream due to lower steel throughput. At this point in time market is bearish, why change the theme, expecting a further drop, albeit a modest $5-10/ST. The CFR Turkey price is down to $227/MT with approx. $17/GT freight would put equivalent East Coast scrap at $210/GT which should be running about $20/GT discount to Midwest, so probable level for Bush in Ohio valley/MW around $230-238/GT depending on region, or approx. $5-12/GT lower. This of course is assuming we have no change in labor situation at AM/USS.

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