Hot Rolled Futures: Summer Time Blues

Copper has rallied back up off its recent dip. We are last $3.1770/lb. you might recall when I last wrote that we were right about here, but likely headed back to mid point of prior rally, or $3.12/lb.. Sure enough we actually tested as low as $3.08/lb zone before short cover ensued this most recent rally. Economic data out of China and even U.S. is encouraging bearish bets, which end up being covered on tepid follow through. So we appear range bound here for the moment.

In Crude the market continues to drift downward as global macro picture continues to disappoint and political disruptions wane, but don’t count out ISIL or Putin to stir it right back up.

Steel:

It’s Summer Time Blues in anything Ferrous with the only bright spot being CFR Turkey scrap, which is enjoying a renaissance over Ukraine production worries. Volume on futures has been almost non-existent in Hot Rolled Coil (HRC). Offers have continued to rise, but buyers have not followed. The whole curve is pretty much $645-650/Short Ton, which is up another $3/ST. The CRU came in at $670/ST down $4/ST, which tells you volume starting to matter to mills.  In Europe, we are starting to see offers on futures with periods Q4 through 1H now in the $435/MT zone. This economy has appeared to skip a beat as well after having showed some promise earlier in the summer.

Below is an interactive graph of the HRC Futures Forward Curve. The graph can only be seen when reading this article while logged into our Steel Market Update website:

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

Iron Ore:   

Data out of China has not been good. This has started to weigh on trader sentiment as this market was pretty much waiting for positive news to offset the now long running malaise in this market. The Chinese steel exports continue to flow (pressuring ASEAN HR futures), but this and healthy steel margins in country do not appear to be enough to offset inbound Iron Ore supply. We are last $92/MT on the spot index with pressure on the forward curve as well. The market is actually still backwardated with mid 2015 either side of $89.50/MT so not looking strong in Iron Ore globally, particularly on the forwards which are off $6/MT off their recent peak. I would expect we will see a retest of recent lows in Iron Ore, which was around $87/MT, and probably a considerable move lower still before this is over. And the “over” part likely only possible with some sort of stumulus.

Scrap:

CFR Turkey rose to $392/MT as a high on the back of buying pressure from Asia and the Turks, however, the 15 or so Turkish cargos last purchased in the week eventually resulted in a reduction back to $386/MT. This mini rally is driven by Ukraine production worries and likely a short term phenomenon. Domestic price discovery will benefit from lower coastal inventories as that scrap won’t be weighing on the Midwest, however, this more constrained supply of obsolete will probably be offset by a lower appetite from mills as lead times catch up.

Another one of those pesky interactive graphs is below with the BUS (CME Busheling Scrap or BUS) forward curve.

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