Hot Rolled Futures: Ooh, Not a Good Chart...

Well we are a fairly precarious point in the S+P 500 and DOW. You might recall that we were headed to 1900 to test resistance in S+P. Well we hit 1892.25 on the June future on April 4th only to close today at 1827.25. From here, we don’t really have any natural support. Further the 50 day moving average (dma) is at 1842 and today was the second close below the 50 dma, which mean it’s a real breakdown. Likely the next real support is the 200 dma which rests at 1759 (think DOW down 1000), and there really is nothing to support it technically between here and there. Take into account that we have a 5 year bull run since March 2009, and 30 month rally since the last real correction and it increases the odds that the 200 dma will broken as well.

So how can this be? The economy seems like it’s on the mend, and everyone is feeling better and lots of people have reinvested in the market. Well there are some “isms” in traded markets that have held true over time about the direction of markets, i.e. changing from a bull to bear market. One is that markets won’t correct until the mood feels good – CHECK, second is most of the money has to have come off the sidelines and have gotten back into the market – CHECK, and third is time, oh yeah it’s been a 5 year bull market – CHECK. If you piled in recently, you should be worried. If you have been in the market all along, prepare to give some back, it’s been the longest sharpest increase bull run in history, by far! It may well be near an end, and the Fed’s easing of the printing is likely what causes a lack of buying below. All that said, recognize as well that markets can take as long as months or even a year to establish their tops.  A sharp down correction may, or may not be in the cards, but volatility certainly will be. You’ve heard me say it before, but you really should Fasten your seat belts, turbulence ahead!

In commodities, Crude is retesting the recent highs closing 103.33, up 4.7% from our March 20th close. China stimulus, albeit lame, probably the driver here. Copper meanwhile closed at 3.0385/lb.. This is also a critical juncture for Copper as it is bumping up against is downtrend resistance line started Dec. 24th ’13. If it fails to breakthrough, and it’s unlikely we will if the S+P is headed for a correction, then we are headed back to test the $2.877/lb low on March 19th. If that fails we are headed to the $2.50/lb zone.

Steel:

A lot has happened in a short time. Last time I wrote, futures markets were testing $610-620/ST (short ton) zone and spot was testing the $600/ST zone. Now we’re are $25-50/ST higher on futures, which is unprecedented in HR futures in such a short time. Spot meanwhile has gone from $620 CRU up to $654 CRU in pretty much 2 prints. Ashland, Great Lakes and Gary all ring a bell. All short term outage items, but apparently enough to drive price up as leads time push out 1.5 weeks from the 3.5-4 weeks we had prior.  Some think it has legs, others think it will be a flash in the pan. Demand is the key, unless of course supply issues continue to crop up. Imports are now competitive again for some.

The futures markets was decent this week with 428 Lots or 16,660 ST. As mentioned, the market was punctuated by reactive buying to the concern over the nearby direction of the market. On the Q2 months, short-cover was the feature, while on the Q3 and Q4 months the spot increases brought out some forward hedgers. The Q2 mos are all either side of $665/ST, and on the Q3 and Q4 we have been either side of $643/ST.

Below is our interactive graph which can only be seen when logged into the website (otherwise you only see a white space). If you have not logged into our website before and/or need any assistance with our website please contact us at: info@SteelMarketUpdate.com or by phone: 800-432-3475.

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

Iron Ore:

The market continued to climb on the back of optimism over the apparent need for stimulus in China. You might recall that the market tested its lows earlier in the year at $103/MT only to rebound quickly back up to the $110/MT zone which is the cost to producer of the marginal Chinese producer. From the weather related supply issues and optimism about need for stimulus have brought Iron Ore up to the $119/MT area on spot index. Further in steel there is an inventory rebuilding in progress, which providing appetite for units and helping to reduce port stocks. Possibily we could hit $125/MT before we are done, but the market faces a fair amount of selling that could materialize out of finance stocks should  we breach $120/MT. We’ll see. Let’s call May either side of $116/MT, June either side of $115/MT, July either side of $113.5/MT, Q3 either side of $112.50/MT , Q4 either side of $111/MT and Cal ’15 either side of $108.50/MT.

Scrap:

CFR Turkey has climbed along with Iron Ore, but for a very different reason. Here it is more geo-political as Ukraine is the largest producer of billet in the world and price rises there have brought scrap up with it. We have now reached $386/MT as a high, only just today to correct back $2/MT to $384/MT. This rally may have peaked as the Ukraine supply concerns start to calm and the US scrap market is not as robust in April as some had expected.

I did not see the AMM Index print this afternoon, but expectations were for up $10/GT in MW as prime flows tempered any early enthusiasm for up $25-35/MT. Either inventories at mills are healthy or this steel rally we are experiencing is not mini-mill focused. With posted prices of $680-700/ST, one would think there was room to buy for great steel demand, i.e. some reporting lack of steel availability. It must be the inventory or…. In futures we have some interests again in BUS. We have seen in the past week $400/410/GT May/Jun, $390/GT bid Q2, and $410/GT offer Q3/Q4. Hmm, maybe there is life here after all.

Below is another one of those pesky interactive graphics…

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