Futures
Hot Rolled Futures: China Meltdown
Written by Andre Marshall
May 1, 2014
Financial Markets
We are still in the testing of the highs mode, closing in the 1877.50 zone on S+P 500, not much different from a week back. Need to take the out the old high and test 1900 again, otherwise… The Fed tapered on the easing, paring the buying program back $10 bln /month again–think we are down to a $45 bln /month program now with $25 bln going to Treasuries and $20 bln going to Mortgaged backed securities. The stock market has taken the information in stride and returned to prior levels and higher after an initial dip reaction. There is more and more talk of a correction in the markets, which means it probably won’t happen right away, but the bullish reaction to the Fed announcement means the market is still bullish, a key ingredient for a correction.
Copper meanwhile has failed to take out the Jan 21st resistance line at $3.10/lb zone and will need to make a decision on its direction by what looks like middle May. Either we are headed up to test the 3.175 zone or we are headed quite a bit lower. Housing sales out of China were quite poor, down double digit, and US copper demand has been tepid at a time when it should be strong, so fundamentals are not likely to help. In Gold, it’s almost the same exact story. It has failed to break the 1300 resistance line started on March 3rd, and, at a $1300 zone now, if the stock market doesn’t correct, we will likely see Gold retest lows again. We closed $1878.5/oz on the June future. In Crude, after putting in a new recent high in April at $103.95, yesterday this market broke through its support line from Jan 13th, closing $99.32/bbl today. All commodities in the last few days have taken an abrupt turn lower, including Iron Ore, mostly due to bad China economic news, but also due to mixed economic data coming out of the U.S. and troubling European political developments.
Steel
It was a fairly quiet week in futures with 400 lots or 8,000 ST trading most of yesterday on the July date. The nearby months of May/June are less well bid than the highs by about $7-10/ST. However, in the last few days July and Aug have increased by about $7/ST, so it looks like nearby hedging is moving out the curve a bit. The balance of the year continues to be offered either side of $635. Buyers are about $5/ST below offers in the current environment. The CRU came in $683/ST or $4/ST higher. We seem to have a plateau in futures which appears to be mirroring a similar plateau in spot, at least for now.
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
A real meltdown in China. Can’t say it wasn’t expected at some point, but Iron Ore dropped $5/MT in a day, or 4.5%! Chinese trade houses liquidated length on the back of economic data, poor housing sales, and new rules around margins required for LOC’s for financing of inventory. This relates to the finance schemes to lower borrowing rates that I have been referring to. We were $105/MT on Wednesday close but, due to the Singapore holiday, Iron Ore did not trade on the index or futures today so tomorrow could bring more fireworks. For now the price suggests that the marginal cost of the Chinese producers is not relevant to the current supply fundamentals and high port stocks. Let’s call June $104/MT, July $103/MT, Aug $102.25/MT, Q4 $101.25/MT, and Cal ’15 $100.25/MT.
Scrap
CFR Turkey continues to be under pressure–down again a dollar today to $375/MT. Continued lack of Chinese long product demand and difficult exports are the culprit. Lack of east coast activity on our shores continues to weigh on the domestic market. Depending on the region, we are hearing sideways to down, mostly with East Coast under greatest pressure and Chicago/Mid West under least, with Mini’s having picked up order from the BOF supply disruptions. Looks like Midwest may still come in down $10/GT by the time we are done.
Below is another interactive graphic.
{amchart id=”74″ BUS Futures Forward Curve}
Andre Marshall
Read more from Andre MarshallLatest in Futures
HR Futures: Nascent rally in HRC futures settles above 6-week downtrend
The CME Midwest HRC futures market’s response to Trump’s election and subsequent comments about blanket 25% tariffs on Canada and Mexico was surprisingly counterintuitive.
HR Futures: Market at crossroads after turbulent run
The market appears to be pausing after a turbulent run. But tension remains just beneath the surface. With net long positioning still elevated, sentiment-driven selling could quickly reignite volatility. Still, supply constraints and limited imports are laying the groundwork for a resilient physical market. This moment of calm feels more like a crossroads than a conclusion.
HR Futures: Traders’ views mixed as market navigates tariffs
A look at the HR futures market.
Market pressures trigger HR futures reversal
Market dynamics are shifting rapidly, with futures pricing diverging from physical fundamentals, creating a complex landscape for steel traders.
HR Futures: Correction in market after big rally
Another eventful week in the physical and financial steel markets is coming to a close, but with a markedly different tone than the last update at the end of February.