Hot Rolled Futures: Reality Check

Financial Markets:

As you all have heard me rant , the idea that the Fed was going to raise rates anytime soon was just lunacy. And now so they have confirmed. They hedged their bets with the removal of the word patient from their language to keep the bullish story alive, but the revision of the economic forecast told the whole story. The dollar was/is just too strong and will be the source of reduced exports and lower energy prices, both bad for the U.S from a jobs standpoint. The employment rate is where it needs to be, but unfortunately the kinds of jobs achieved are poor and as a result the wages are anemic, and over time this does not translate well for consumption. The tailwinds of the recession pent up demand are close to over, and our economy here will have to operate of the consumers ability to buy goods, and our ability as a nation to exports goods and services – and this component is not in place.

Auto demand appears intact for now, and construction may well continue to grow slowly, but everything else is struggling or about to. Europe and Japan starting their printing presses is a positive sign, but China engine is still sick. Commodity prices tell the whole story there with the Chinese exporting more and more commodities, i.e. Iron ore has been limit down on price the last two days. Same is true in all commodities and China is the core of this malaise.  

The S&P has done well on the Fed’s announcement  jumping 50 points from low to high yesterday as the market took in this reality check. We are last 2080 zone having stated out yesterday at 2050, we look like we are consolidating and heading higher to take out the highs. Monetary easing is intact and the market will be supported accordingly.

Steel:

We traded 1118 lots this week or 22,360 ST. Earlier in the week we traded Q2 ’15 at $502/ST, and yesterday we traded Q3 @ $535/ST and Q4 @ $540/ST, and today we traded January ’16 @$545/ST. Market is offered at these levels but the difference now than before is that the sellers are there but not reaching. The buyers, when they come in, come in below, but tend to have to reach to get done. Otherwise the levels haven’t really changed  since last week, save for Q2 which trade lower, but is now if offered quite a bit above again, at least May/June. Last Cal ’16, we traded last week $565/ST, but for size I’d expect it to be a bit lower than that. CRU came in at $484/ST or down $4/ST.

 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:

As I mentioned, we had a bid drop in Iron Ore, down 5% two night back alone. Anyway we are last $54.50/MT on spot and the forward market is still backwardated and that suggests further room to move down. Let’s call April either side of $54.35/MT, May either side of $53.65/MT, June either side of $53.00/MT, Q3 either side of $52.85/MT and Q4 either side of $51.75/MT.

Scrap:

Obsolete/Shred has dried up, poof. Primes flowing heavy as usual of late and covering the lack of secondary, but not for long….  CFR Turkey meanwhile is steady on limited activity. Certainly smells like a bottom forming in scrap and if so we know what that means for steel.  

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

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