Hot Rolled Futures: China Meltdown

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.

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.