Hot Rolled Futures: Perception in Markets - Everything

Financial Markets:

The U.S. market is still very close to its highs. We are last 2091 on the June future v. a high of 2019 area. The talking heads are talking about the U.S market being tired. Why this particular period is worth saying that is pretty amusing. The market’s been tired for 3 years, but continues to go up. Why? Monetary easing and crummy interest rates, i.e. no other alternative for a return. But that may be changing, and this is what may start to weigh on the U.S. market. Other markets i.e. Europe and Japan, and China have been taking their pills for some time and are now entering a monetary easing phase which will be good for their equities. The U.S market is now not the only alternative. Rather than money flow away from the U.S market, it’s more of a sentiment  perception that there might actually be choices going forward, like the money market – should the Fed actually start to raise rates. For now it’s just symbolic, but remember market values are based on perception – just like the many of you sitting on your steel orders because you think tomorrow will bring lower steel prices – and so the effect can be swift if the market all of sudden thinks that our market is over-valued. I’ll raise my hand for one in the over-valued camp (but I’ve been wrong for 3 years ;)).

Steel:

The futures market has had  a brisk few days. We have traded 1332 lots or 26,640 ST as the market appears to be reacting to? Nothing one can put a finger on exactly, but it appears that that “perception” component might be changing, and the futures market is the manifestation of the collective mood of the market’s direction. On that basis, I’d say it is telling us we are headed back up. Q2 traded $515 today with May/Jun piece trading as high as $520/ST. That is $5/ST higher on the Quarter and $10/ST higher on the May/Jun. June was in fact bid $525/ST at point today. Q3 meanwhile traded $535 with further buy interest and Q4 as well traded again $540/ST with further buy interest. Sellers no longer have to reach on futures and in on May/Jun months are being chased a bit. Cal ‘16 hovers around $585/ST zone, at least until the first buying comes in for that period.

 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:

Well the sideways, waiting-for-the-busy-season-to-prop-up-Iron Ore phase is over as the spot index dropped almost 5% overnight, last $59.6/MT zone. Futures followed and we are down $2-3/MT over the last few days depending on the period. Bearish picture prevails here although the Export Chia steel price has stabilized and even climbed in the last week. Let’s call April either side of $58.50/MT, May either side of $57.75/MT, June either side of $57.35/MT, Q3 either side of $57.00/MT, Q4 either side of $56.45/MT and Cal ’16 either side of $55.50/MT.

Scrap:

Many of you have heard me say that I think the scrap market is just too bearish. Which tells me that the market will surprise to the upside, whether that’s mills who’s inventories are just too low or buyers looking at the levels as an opportunity to load up, or, hey! how about just about zero supply of obsolete in some zones. Shred looks certain be up 10-20 depending on zone and busheling may yet pull off sideways in some sectors as prime has to step in and substitute for lack of shred. Signs from Turkey are looking up as well, CFR Turkey climbed $6/GT on last cargoes, last $256/GT area. Demand from the south also is providing some interesting bids. We’ll see, perception matters. 

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

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