Hot Rolled Futures: New Highs

Andre Marshall of Crunch Risk LLC has the honors this week to discuss the financial and HRC, iron ore and scrap futures markets in an attempt to make sense out of what can sometimes feel like total chaos.

Financial Markets:

Well we’re at all time highs again, having hit an intraday on the September S&P futures of 1987.8 and is last 1980.00 approximately after surviving a couple small dips last week due to the unfolding crises in Ukraine and Gaza. Economic data of late has all been quite positive except for new housing sales which dropped 8.1 percent in June after a rise of 8.2 percent in May, killing any idea that a real spurt in residential construction spending may have been developing. Unemployment is down to 6.1 percent and dropping fast, and productivity is waning, which means inflation pressure here is likely imminent. The bond market is already responding to this impending inflationary pressure. This is Yellen’s headache, how to continue throttling back on the printing, with employment in better shape and at risk of inflating, while continuing to make interest rates accommodative enough to keep people buying new homes and creating construction jobs. Already the increase in mortgage rates in the last year has curtailed the home buying appetite.

Copper also rose in the last week climbing quite a bit today on HSBC’s China factory index which came in at 52 for July, which was better than analyst estimates of a 51 reading (above 50 is expansion). This put September futures at $3.2665/lb. up another 10 cents in the last two weeks. The investment community looks like they are starting to get long commodity markets again in anticipation of a global recovery. Crude oil meanwhile is milling along not sure which will be the next headline for it to notice. Last we are $102.05 on the WTI index.

Steel:

The steel futures market had a modest 12,760 short tons traded in the week. Most of this was in the nearby months September through December, with September trading $650/ST and Q4 months trading either side of $643/ST. We also had a Q2 ’15 trade just below $640/ST. For both sides these levels appear fair value as buyer cover to protect against consolidation and increased demand and sellers protect against supply eventually overwhelming demand. The CRU meanwhile came out at $667/ST. The CRU has hovered in the $660’s now for a month plus.

Below is our interactive graph depicting the hot rolled futures market. The graph can only been seen and interacted with when you are logged into the website and reading this article online (otherwise it just appears to be an empty space on your screen).

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

Iron Ore:

Iron Ore appears to have stagnated a bit with the Index coming off to $94/MT. The July contract is either side $95/MT, but the rest of the curve is flat just below $93/MT pretty much all the way out to 2015. The steel mills do have lean inventories and the bulls anticipate further restocking. Meanwhile the port stocks are healthy and production is just greater than demand, which have bears waiting for a retest of our $87/MT low. Really too high to buy and too low to sell for now, no man’s land in Iron Ore. That said the forward curve is flat and prices a year plus out still look pretty attractive.

Scrap:

The domestic markets plentiful supply has been met by good demand from mini mills. Shred rebounded this last month about $10, but Bush did not going sideways. Exports have picked up a bit as the S E Asian market has taken a number of cargos at $7-8/GT better than last trades due in part to lack of Japanese scrap due to poor economic activity. This in turn has pulled the Turks in to pay a bit more as well. The CFR Turkey index has risen in the last couple weeks a few dollars to $375/MT. Supply/Demand picture won’t change, we’re plenty well supplied/oversupplied unless export activity really improves going forward. The Asian interest helps but Turkey will have to return in earnest. Only bright spot in their market is Iran and domestic demand, everything else is miserable. Hard to factor if there will be a Russian supply effect in their markets, ie Ukraine which is a big billet producer.

Another one of those pesky interactive graphs below – this time depicting ferrous scrap futures.

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