Hot Rolled Futures: Meltdown

Well today saw a pretty big drop in the S&P 500 which was down 30 points. We are last 1961 on the December future, support had been at 1964 so it looks like this is now the beginning of a correction to at least 1890, maybe more. With the market anticipating rising rates at some point here in the near future, the US dollar gained further against a number of currencies with the $/EUR reaching $1.2697, the strongest level since Nov 2012. A strong dollar and the threat of higher rates are not good for the equities market. At a minimum it looks like professional money is quickening its pace of liquidation, at least in the interim.

Copper is not in a good way. We are last $3.03/lb approximately and are likely to test the $3.00/lb. mark in the near future as the demand for the red metal in China has just lost its luster and inventories continue to build on global exchanges. Very similar tales to what we are hearing in Ferrous appetite there. Crude meanwhile is trying to bounce of its recent lows and is last trading between $92-$93/bbl. We have broken the recent downward trend line, but I suspect given global demand malaise and U.S. production increases that we will be testing $90/bbl here again shortly.

Steel:

Hot rolled coil (HRC) futures have been quite active again, with 839 lots trading in the week, or 16,780 short tons (ST). I traded Calendar year ’15 at $640/ST, and Q1 $642/ST, which also traded $640/ST. The offers are there still for those periods for anyone who is interested. October also went through at $643/ST. The market is finding layers of interest as it comes off its higher levels. The CRU came out $1 down or $661.00/ST. The September import numbers are showing another very healthy import level, basis the first three weeks stats. Looks like the trade case possibility for finished  goods has already sailed if anyone is listening to the timetable that would have had to have been followed to avoid including stellar Q3 mill results.

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:

China is a mess!

Iron Ore is now $76.6/dmt on the index, despite having risen to mid 80’s earlier in the month. The traders have really given up on any idea of a government bail out of the declining economy. Port stocks continue to build, last around 100 million metric tons, and cargos keep coming. The forward curve is pretty flat with the mrkt approx $77.25 – $78.25 through Calendar year ’15, and about $82/MT on Cal ’16. The market is still structurally depressed and we are nearing China’s actual  cash-cost to produce.  We’ll see if that stops them producing. There are a number of speculative shorts building in this and the rebar market. Could be fuel for a rally at some point.

The steel price in China is really tanking. ASEAN HR has dropped $5/MT for each of the last two days, we are last $506/MT on the index. This down from $525/MT on September 16th. This is the China export price, and clearly the exports are flowing with little in sight of any change to this trend. Rebar is last $420/MT. Sounds like a scrap number, no?!. Can anyone guess where scrap is headed globally?!

Scrap:

CFR Turkey is in trouble too. We are now $365/MT which is another $10/MT below where we were a week back.  Weak demand, Chinese import pressure and USD strength killing any appetite for Turks in our scrap market, they took two cargos last go round. Bearish trend here remains intact. Rumors abound as to domestic prices coming off in Oct $15-30/GT, depending on region.

Definitely a buyers’ market. Our island position will be eroding as these winds arrive.

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}