Iron Ore & Scrap Futures: Up, Up and Away and Firm in a Sideways Market

Iron Ore over the past few weeks remains a true bright spot in the commodities complex as stronger than expected summer steel demand in China has driven prices to highs not seen in months and monthly shipments to all-time highs.  July saw 73 million tons shipped to China surpassing the previous record set in December of just under 71 million tons.   The increased shipments with ascending prices indicates just how strong demand for steel is in China, a surprise to many as most analysts predicted both finished steel and iron ore demand to be slack in the second half of the year. 

The futures market continues to trade higher with nearby months of August and September trading to $134 and $133 respectively, while further down the curve prices move into a steep backwardation. This shape of the curve whereby prices are trading at a discount to the spot price indicates a general market sentiment that the current strength in pricing will deteriorate over time. The cal 14 is trading at $116 a significant discount to the current $133 spot pricing. Time will tell if this plays out. The story of iron ore the past 8 months has been one of surprising strength amid increasing supply.

U.S. Midwest #1 Busheling Ferrous Scrap (AMM) Firm in a Sideways Market

This week the physical busheling market materialized for August with prices remaining unchanged from July. Supply / Demand seemed to be fairly balanced for busheling while shredded scrap came in down $5-10 per ton. The futures market reacted briefly with bids searching for offers with q4 trading up to $387 with bids to repeat but offers not willing to reach below $400 per ton. Against the backdrop of a potentially plateauing finished steel market it will be interesting to see how the scrap market plays out in September.

Volumes have been light on CME with approximately 1500 tons trading over the past couple of weeks. The contract still is working on gaining traction and the lack of volatility of late has kept many would be participants on the sidelines.