Hot Rolled Futures: Is a Turnaround Imminent?

The S&P is in an interesting place, right at its support line started from the October 15th 1806.75 low. On March 20th and 23rd we failed to take out the old high at 2109.75 set February 25th, missing by about 2 points. Thus we have swiftly moved back to support here. My guess would be that it would be unlikely that we’ll hold support here, and that the market is due for a retracement, if nothing more than a modest one. After all, who’d dare call the turn on this bull market. I know I’ve given up. However, we are likely in a phase of forming a top on this 5 year bull market, and tops are usually formed over quite a long  period of time and are usually quite volatile. In this phase it will seem as if the market goes up or down for little apparent reason, except that liquidity just isn’t what it used to be.

Copper has had a big move up since the 18th along with Crude and most commodities as the Fed let lose that they would indeed not be raising interest rates any time soon and the USD started to retrace off its highs. We are last $2.8050/lb. on the May futures up from the $2.63/lb. level then. Current resistance line is just under $3.05 and it will probably meet this current rally right around the $3.00/lb psychological level by the time this rally gets to it. I would guess resistance will hold in these commodity charts unless there is better economic date on the immediate horizon. Crude has had a similar story. We are last $50.91/bbl on the May contract after reaching $44.18/bbl on March 18th.

Steel

Anyone sensing a turn here? Probably not, and that’s likely why we’re likely close to one. Everyone is too bearish. No one is really paying attention to how much capacity is being curtailed. Inventories are not as flush as MSCI date would suggest (think import inv. wrapped up in long term deals), scrap flows in obsolete non-existent, dwindling imports m-o-m, and demand for steel still decent, some might even say good. There’s a rally coming, despite trade case fodder, it’s just a matter of when, how much, and for how long.

In futures we traded 900 lots or 18,000 ST in the week. The market has come off about $5/ST on futures across the board with May/Jun trading last $515/ST, Q3 $530/ST and Q4 $535/ST. Q1 is around $545/ST, and Cal 16 is around $560/ST. Meanwhile the CRU came out $471/ST down $13/ST reflecting that some steel is getting placed, albeit not enough. Two more closures on the integrated from from AM and USS albeit modifications to earlier intents meaning in net more capacity is coming off and will likely stay off for the foreseeable future.

 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 given up pretty much all of its gains of that USD drop rally that commodities enjoyed from the 18th on. Iron Ore rallies are opportunities to sell until the overcapacity is addressed. Just like the Saudis in Crude, the big three seem content to just produce and see what happens. Lets call Apr 53.50/54, May 52.75/53.15, Q2 52.75/53.25, Q3 51.75/53.00, Q4 50.75/1.25, and Q1 49.75/50.25.

Scrap

Scrap is quiet with the Turks buying very little and none of ours, but despite this prices are likely to be supported if not even rally as supply has really dried up. Story here the same as obsolete just not forthcoming at these levels and inventories downstream depleting. Shred should up for sure, and this will likely support Bush this time which has less of overhang tan prior months and starting from a lower price so less pliable. We’ll see range estimates vary greatly.

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

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