Hot Rolled Futures: A New Year

Andre Marshall, CEO of Crunchrisk, LLC has the duties of outlining the hot rolled futures and busheling scrap futures markets for our readers (as well as taking a look at the financial markets, iron ore and commodities in general):

On the March S+P future we closed at 1833, this is up from the 1806 level we had when I last wrote before the holidays. As I mentioned, fear about drastic easing of the easing has passed and we are back to going higher, which we like and promote. It looks like the retail equity buying will not subside anytime soon as long as sentiment is positive, and it appears to be so. Likely target is 1900, and it may not take longer than a few weeks to get there. This, the rally of all rallies – thanks to the printing press – continues to move us ever higher. Headwinds from here amount to concern over whether productivity can really continue to perform, as the record profits have essentially been wrung from the backs of those blessed to have kept their jobs, and the jobs of others ;). Some of the improvement in the employment picture is a sign that that productivity gain is waning, and this will eventually weigh on those corporate profits, but not just yet probably. Support below is still 1775-80, near term resistance is 1840, but it should prove temporary and fleeting.

Commodities have not performed as well as equities. In Crude we closed $92.41/bbl today versus the $98.68/bbl I reported back on the 19th of December. To me this is a pretty important benchmark in that it’s very global, and not an easy commodity to store, and therefore suggests a declining demand environment globally. In Copper, we are almost exactly where we were on the 19th having closed $3.2955/lb v. the $3.2875/lb.. This is interesting as Copper’s stocks have continued to decline albeit almost certainly partly attributable to hoarding v. any voracious demand. Gold meanwhile has climbed from its trough of 1190 that I last reported to 1229 today. It could be just building a base from its lows or it could be a sign that traders are wary about the easing of the easing effect on equity values as interest rates climb. We won’t even touch the topic of whether Japan and Europe are about to embark on a round of aggressive printing as some in the financial world believe is inevitable.

Steel:

After a quiet holiday period, we have had a decent week with 1262 lots traded or 25,240 ST. The trades have come in for the 2nd through 4th quarters and have brought the back end up about $5/ST at their peak. However, from yesterday to today we have seen lower offers by about the same amount to leave the back end of the curve pretty much unchanged. The buying appears to be hedge buying from end users.We have also seen some short-cover buying February that has brought that month up as much as $10 at its peak to $660/ST.

This week’s CRU came in at $678/ST which was up $10/ST although very few transactions appear to have actually taken place. For the first time in some time, it seems as if the industry really isn’t clear on which direction the price is headed from here, as demand is being described as a trickle right at a time of maximum production. I thought it interesting to note as well that Nucor has started to deliver from its DRI facility although it is not clear at what capacity as yet. This should have an effect on supply/demand balance going forward in North America along with AHMSA’s new mill south of the border.

Below is a look at the HRC Forward Curve for the week. If you are unable to see it this is due to it being an interactive graph which can be viewed on the SMU website when logged into your account.

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

Iron Ore:

Over the holiday, we had a bit of a perfect storm with a Typhoon hitting Port Hedland while Vale had to declare a force majeur due rain related issues in Brazil. This brought the spot and nearby forward markets up as traders covered shorts and looked for remaining cargos. The typhoon ended up not having quite the bite that had been expected and did not affect the mines, and the Force Majeur at Vale was lifted a couple of days ago. So we are back to where we started before this little excitement at $131/MT having reached just either side of $135/MT at the peak turn of the year. Yesterday and today saw the bulk of the drop with the curve in 2014 dropping anywhere from $1/MT to $2.5/MT today alone with February taking the biggest hit. Expectations for Iron Ore had been lower before this weather related pause. Expectations again look like we are headed lower although opinions vary divergently as to timing and severity. Let’s call February either side $129.75/MT, February either side of $126/75/MT, Q2 ’14 either side of $120.50/MT, Q3 ’14 either side of $115.75/MT, Q4 ’14 either side of $113.50/MT and Cal ’15 either side of $110/MT.

Scrap:

Spot market chatter suggests we will see $15-20/GT up in shred, however the market has started to retrace from that so it will be interesting to see where it settles early next week. Meanwhile Bush is expected to be up $10/GT and again here, with flows apparently pretty healthy, this may be higher than where we actually settle. The weather certainly influenced some attitudes in the Ohio valley zone and others, but weather also affects steel shipments and in the end the mills appetite may not be what was expected, particularly with declining, and in some cases just plain short, lead times. We settled BUS last month $436.16, this month we’ll like settle just north of $440/GT.

In the Turkish market, we have slipped a little on the index to $400/MT, having reached $402/MT. Europe continues to be the source of preference for the their market with relatively healthy scrap prices here, at least on an exchange adjusted basis, and freight considerations. Demand for steel in MENA, and competition from imports continue to put pressure on the mills there.

There is another interactive graphic below with the BUS forward curve.

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

A Happy New Year to all, and here’s looking forward to a great 2014!

Andre Marshall, Crunchrisk, LLC