Hot Rolled Futures: Hope Springs Eternal

Andre Marshall, well known commodity futures trader, CEO of Crunch Risk LLC and instructor for our Managing Price Risk I and II workshops has written today’s HRC futures article. Today he comments on the financial markets, steel, iron ore and ferrous scrap markets.

Financial Markets:

All time highs again in the stock markets. We are last 2028 on the Dec S&P future, and likely headed to 2090 level. The Republicans sweeping both houses and Governors’ jobs has the pro market players in buy mode. Add to this the Japanese easing policy and Europe’s attempts to ease and hope springs eternal.

Meanwhile the commodity markets tell a different story as all eyes are on Crude’s fall to sub $80/bbl levels. We are last $77.85/bbl on Dec futures and crude is looking way too comfortable sub $80/bbl for this author’s comfort. Oil is probably headed lower as global demand just isn’t what it was, but hopefully not a lot lower.

Copper as well has tried to rally of late as buying by the Chinese Strategic Reserve and metal coming off exchanges has gotten some parties bulled up. However, it failed at $3.10/lb. zone, and we are now back to $3.01/lb area and probably headed to test the lows again.

I think crude and other commodities have weighed on sentiment here as fundamentals are not terrible despite a lackluster demand picture.

Steel:

We had an excellent week in steel futures with 2355 lots trading or 47,100 short tons (ST). I traded most of this in two strips one end last week around $635/ST zone and one yesterday around $630/ST zone.  The markets continues to have interest either side of the $630/ST level, December onward. CRU came in at $637/ST down $3/ST. Most report pretty healthy inventories and imports appear to continue to come in in full force. The import picture will probably finish strong through the 4th Quarter as people rush to ship their Russian cargoes. Price increases by mills look to stabilize prices at this point as metal is in oversupply.

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:

Well, we talked about the market wanting to head to $75/MT, well we’re there on the spot index. The forwards amazingly enough are still backwardated, which is not encouraging. Q1 ’15 is $74.50/MT (ish), but the curve drops to either side $72.50/MT from there through end of 2015, and even 2016 is trading just sub $73/MT, amazing! Big producers appear determined to keep producing and any hope that Chinese government actions to control iron ore production might cause a rally were quickly dashed. Port inventories do continue to decline, but so too does steel production. Just not a good picture here. Like crude, probably reflecting a slower Chinese economy, which in turn affecting 3rd world markets that feed it.

Scrap:

Nothing has changed really. Appetite is still lean (Chinese steel glut, ISIS, global economy), and with our stronger currency we are not the preferred source even if our scrap were priced on a par with the globe, which it’s not. Japanese scrap has come off another $20-30/MT in the last few weeks. CFR Turkey has actually stabilized having bounced off of $331/MT to rally to $335/MT, but we are slipping again. Expectations for domestic appear to be down $20-30/GT, but even with that drop our units are looking expensive relative to world levels. Eventually we probably face further pressure here into end year with low likelihood of any material exports.

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

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