Hot Rolled Futures: Now What?

The S+P closed approximately 1873 on the June future. This is 46 points above where we closed two weeks back when were testing the 50 day moving average (dma), or 2.5% higher.  The low, then, actually printed 1812 before rebounding. We are headed back up now to test the highs, which happened at 1892.25 on the June futures back on April 4th. If the market cannot take out the high at 1892.25 then we will re-test the recent low of 1812 and most likely the February 6th low of 1725.50. Like I said, be prepared for volatility.

Commodities, except for Gold have been stable in the period with Copper and Crude showing life of recent. Copper has been pretty much in a $3.00/lb. to $3.05/lb. range since March 28th until today when it broke out of that range closing $3.0865/lb. or up approximately 6 cts/lb. Gold also had a rally day, closing almost 1293 after printing 1275, the recent low, in the morning. Gold needs to break through 1310 zone to get out of its downward trend while Copper needs to break through $3.12/lb initially and $3.19/lb after that to be back in positive trend.

Steel

The futures market has been quite active again in the week trading 1530 lots or 30,600 short tons (ST). In the week we have seen the front three months trade about or get offered lower by about $5/ST, while the Q3 and Q4 have come off as much as $7/ST.  Forward hedgers are being met by short sellers or trade inventory hedgers.

The CRU meanwhile printed $679/ST or up $10/ST. This is the first time I can remember where the CRU has printed about where the spot market is being offered. Not much is trading in the spot market as everyone appears to have made their move to cover needed units. Much focus has been put on the lakes issue, but no one is reporting yet that they are not able to get steel albeit at high number. The futures market, with pressure across the curve, is pricing in a quick correction once weather issues are resolved. For instance July is priced at a $30 discount to June in the futures.

Below is an interactive graph with the hot rolled futures forward curve. The graph includes where trading was four weeks prior for a reference point for our members. You must be logged into the website and reading the newsletter online in order to see and interact with the graphic. If you need help we are here to assist you. Contact us at: info@SteelMarketUpdate.com or 800-432-3475.

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

Iron Ore

At this point we have given back most of the rally off of the bounce off of $110/MT as we reached $119/MT, and have steadily retraced back down to $112/MT. Today we found a little support on the index at $113/MT. The effects of the restocking downstream are starting to wane and concerns about weather related disruptions in Australia have dissipated so now the market is left to its fundamentals. $110/MT is the cost of the marginal Chinese Iron Ore producer so seeing support here, for now anyway, is expected. Let’s call  May either side of $112.75/MT, June either side of $110.50/MT, July either side of $109.00/MT, Q3 ’14 either side of $108.50/MT, Q4’14 either side of $106.75/MT and Cal ’15 either side of $105.15/MT.

Scrap

On the export front the CFR Turkey index has dropped to $377/MT despite reports of a few healthy sales off the East Coast a couple weeks back. Some of the malaise now is a lack of Chinese demand for long products, not a good sign for a country that supposedly just announced a stimulus. If Ukraine were resolved the CFR Turkey price would most certainly be lower as billet price pressure would ease. Futures have been quiet as the market is lacking bids on the curve.

Meanwhile on the domestic front it looks a little subdued with most expecting sideways to lower for May and a drop in June for whatever May doesn’t give up. Much of the pessimism is the heavy flows in prime, the expected heavier flows in secondary due to weather and realization that maybe Nucor’s DRI facility at 2 mln /yr plus does matter to the scrap fundamentals. This rally to $400/MT zone in busheling may well be a bounce in a downward trend for scrap. The timing of this drop however will be dictated by to what degree the mini’s have been caught short units due to picking up orders left by Great Lakes and Gary. Futures interests have increased, but nothing has crossed as levels are too far away from each other.

We have another one of those pesky interactive graphics in the blank space you see below (unless you are reading the newsletter on the website in which case you are able to both see and interact with the graphic).

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