Hot Rolled Futures: Under Pressure

In commodities, we are pretty much higher across the board, albeit modestly, as markets have found support for now. Crude is higher closing $94.10 v. our $92.41 close a week ago. The market will likely need more confirmation of its bearish fears if crude is to breach $90/bbl. In Copper, we closed $3.3415/lb. v. the $3.2955/lb close we had a week back. Copper’s stocks are in tight hands, 90% of the LME stocks are held by one company, and so it’s hard to imagine the market taking too bearish a view on Copper with such low stocks. Gold meanwhile has recovered a bit from a week back to $1242.90 from our close then of $1229.

Steel:

We had another active week in HR futures with 1,367 lots traded or 27,340 ST. The curve was under selling pressure all week with the almost the whole curve in 2014 right around $630/ST. This is down $5/ST from a week ago. March is also quite surprising as it is currently trading approximately $45/ST below the current CRU spot price, which came in yesterday at $677/ST, down $1/ST from the week prior. The result is a forward curve moving from backwardation to a flat curve beyond February. Opinions aside on what people think about spots prices, the forward curve is pricing in a big, and swift, downturn in pricing, and pretty soon apparently.

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

Iron Ore:

We are under continued pressure in Iron Ore. We held support at $130/MT initially last week and bounced ever so slight before testing the level again only to fail. The $130/MT level is a critical level as it has been the suppot for the last few months. We have since settled the spot in just above $128/MT, and the fate for the forwards has been the same as they have followed suit  down, not even really changing the backwardation that much as yet. Let’s call Feb ’14 eithr side of $125/MT, Mar. ’14 either side of $122/MT, Apr.’14 either side of $120.25/MT, Q2’14 either side of $119/MT, Q3 ’14 either side $115/MT, Q4 ’14 either side of $113.25/MT and Cal ’15 either side $109.50/MT.

Scrap:

January was up a healthy $20/GT on Shred and a pretty healthy rise of $8/GT on prime. However, the big news was that a lot of the industry thought we would be up a lot more on the back of the polar vortex that hit us. A confluence of elements conspired to crush the enthusiasm, the most important of which is steel mill demand. Despite some reports to the contrary, mini-mill lead times are not great and those that are decent are coming in pretty fast, particularly on HR, as the demand trickle takes its toll and mills catch up on back orders quickly, with full production in force. The prime to shred spread was narrowed in the process, and we are now close enough to equilibrium on the two markets either side of $40/GT that prime, which has very healthy flows, will compete more readily with the stubborn supply streams of Shred should Shred prices not cooperate next in the next month. Usually dealers won’t get nervous until March, but we may see concern coming as soon as next month, particularly if we have already seen the worst of the winter weather and imports of steel pinch further.

Turkey is in a deep freeze of its own, a deep freeze of activity that is, as the market there has little movement on steel demand, and margins get squeezed further. Turkish buyers continue to find what they do need off the European shores, and the price has eased only slightly off $400/MT, but we probably would have come off more if there had been transactions worth noting. Stated in a word, malaise! We can’t count on Turkey for the time being to be the buyer of scrap form our shores.

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