Hot Rolled Futures: Grim, but...

The S&P continues to perform, we are last 2054 on the March futures after testing our recent low at 1981 on the 16th. It looks like we are headed back to take out the highs at 2088.75. We are in the Euphoria stage of the domestic economy with improving employment, good consumer spending and strong trailing economic data and robust forecasts. Meanwhile the energy price meltdown provides a cautionary signal to the market such as swift layoffs in the energy sector and its residual knock on effect.

Optimists here will also look at the benefits of lower energy prices for consumers. Crude meanwhile, at $47.20/bbl on the March future, is pretty stable in a $43.50/bbl to $49.75/bbl range since Jan. 12th. However, stable sideways after a swift move down usually signals a further drop (bear flag). Copper meanwhile at $2.54/lb zone pretty much hasn’t looked back since the $2.80/lb. low on Jan 12th.

Steel:

We traded a total of 352 lots or 7040 short tons (ST) during the week. The majority of that was traded today in the 2nd Half where a seller stepped in to trade a period that had been unloved for almost a month. That level was $575/ST. This trade is the essence of Grim that has gripped the U.S. steel market as imports have frankly overwhelmed the industry and buyers have sat on their hands expecting ever lower prices.

Demand is good, some say even great, but supply is crippling and inventories are huge due to imports. Part of the equation is the sheer quantity of metal that has come in on hedged import deals and are being held for future periods, but is not readily available to the spot market. This is material that appears in the inventory numbers, but is really future inventory the way it has been structured.

Except for the selling today in the back end, 2H onward has been bid, and unless selling is ongoing I’d expect higher levels soon as buyers sense a bottom. The CRU came in $566/ST which was a big drop, but expected, and it helped bridge the gap between CRU prints and the reality on the ground. Despite the pervasive Grim in the market sentiment, production will adjust one way or another, and already a number of EAF furnaces/casters are idle.

All those times you heard me ridicule the idea of a trade case when things were roaring, well, watch out for a trade case because it’s likely on its way now.

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:

We are gradually giving back all the market gained on that short-cover rally a couple weeks back. The Chinese government provided only hope and not real demand, and time has eroded those gains. We are $66/MT approx on the spot having reached $72/MT zone then and the market remains backwardated with low $60/MT levels in the back end of 2015.. But here too production is quietly getting curtailed as junior miners quietly shutter operations and larger companies like Cliffs mothball production.  

Scrap:

The CFR Turkey is finally under pressure in the last cargos. We had reached a high of $319/MT zone a month back or so and stayed there until  two weeks back, but last trades came in between $310/MT and $315/MT for pure Shred. I suspect pressure continues here on CFR and we head back to test $300/MT. Meanwhile on the domestic front after we failed to really move higher in January and mini mills have not gotten enough orders to warrant further big buys, we are in a position of decline, real decline. Estimates are that scrap will be down between $35-50/MT as flows trump need. We may yet breach $300 on bush domestically by March. Not a good development for steel prices.

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}