Hot Rolled Futures: From Russia with Love

The S&P 500 has had some pretty miraculous moves of late as has the bond market. Concerns over global economic malaise and ebola weighing on the down side while domestic economic data maintaining the hope on the upside. On October 15th we hit the low in the S&P at 1813 on the Dec. future which breached the 200 day moving average (dma) on high volume. We have since rallied dramatically the last few days to 1946 today. We have broken resistance today at 1944 the .618 retracement level, and are likely headed higher to retest the highs after a shallower dip first. In bonds, the 10 year has run from 2.3% yield to 1.8% yield to 2.2% yield practically in a blink. This is crazy volatility for bonds as money flows have been whipsawed into and out of markets. Like in commodities I would expect increased volatility in financial markets as well.

In Copper, price has ranged from $2.97/lb area, reached on Dec. 14th, to the $3.05/lb area. We look like we may have put in the recent lows, like in equities, and are now poised to head higher, although there is nothing in the fundamentals to warrant a rally. We could move all the way up to $3.16/lb. zone and still be in the bearish trend, started July 14th at $3.27/lb. In Crude,  we are in a $80.50/bbl to $82.00/bbl tight range as the market starts to form a bear flag formation. Not a positive price action picture here at all in Crude, the benchmark of global economic health.

Steel:

From Russia with Love kinda news for the mills as the Russian Suspension Agreement is cancelled by the Dept of Commerce. With the cancellation, it appears to mean that we revert back to the tarrifed rates on Russian steel for cargoes arriving after Dec. 16th to the tune of 78% for Severstal material and 184% for all other Russian productions. Russian imports in HR amount to about 13% so not an immaterial quantity to be affected. We will have to see whether other country supplies will take Russia’s place, like from Brazil or Turkey or Europe? This news has had an immediate effect on HR futures. On Friday, I traded Jan/Aug at $618/ST and today you’d be lucky to secure $635/ST for any period Nov.’14 onward. We’ve had no trades since the Russian news however, and time will tell where the market settles in. The CRU came in at $642/ST down $5/ST. With scrap declines expected for November and still excess supply, it would not surprise to see further erosion on price in near term.

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:

Iron Ore has been more stable with slight erosion continuing. We are pretty much $80/MT on the index and steep backwardation on the curve Q1 to Q2 with Q1 either side of $78.50/MT, and Q2 either side of $76/MT. From there it is slight contango every quarter with Q3 either side of $76.25/MT , and Q4 either side of $76.75/MT. No change in fundamentals here and no sign yet of any significant production curtailments.

Scrap:

More erosion in CFR Turkey scrap now at $331/MT. Expectations for domestic are no better with a further drop expected between $10-$20/GT. Frankly with international levels where they are the domestic market could do with some catching up in any case. If a delivered Turkey price is $330/MT zone it suggests we may have a ways to go here.

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}