Hot Rolled Futures: Yang Where are You?

Last 2084.50 on the June contract we continue to hold that support line I have referred to, that started with the low on October 15th of last year. In fact, the line has been tested so many times I’m convinced that we will rally and take out the highs set on February 25th at 2109.75. Further, we first reached this zone back on November 21st when  we reached 2052 on the June contract. This is significant to me because we have been in a sideways range since. Add in the recent tests of the support line and this makes for a compelling move upward again. Of course, debate about the Fed and what she will do, or won’t do, prevails, but hiccups aside from any surprises here, and I’d say we’re headed higher.

Steel:

We have traded 1860 lots in the week or 37,200 ST. The CRU posted $454/ST, down $5/ST, but the weeks activity really kicked off from last week’s CRU print which was down $12/ST at the time. As a result, we had lower trading on the futures curve as sellers moved to hedge inventory or cargoes. Notable lows were on May @ $475/ST and August, which traded $505/ST. We traded Q3 today @ $510/ST and Q4 has traded $515/ST. We have also seen the Cal ’16 mos. trade from $555/ST down to $545/ST today. Meanwhile industry participants despair somewhat as the market has presented its Ying, but where pray tell is Yang? Aren’t commodities supposed to run in cycles?

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:

Lots of conflicting news out of China about what will transpire in ferrous markets. On the one hand there are strong rumors that approximately 80 mln tons of small steel production is targeted for closure due to pollution concerns. Meanwhile there have been roll backs in export rebates for certain finished flat steel products, and the govt. has apparently announced tax cuts for Iron ore miners. This seems to be a strange move considering most China Ore miners are losing fistful of dollars right now. Despite the uncertainty we seem to have found support here with the market up about $2/MT off its record lows. Short-covering is certainly the driver, but the reaction is somewhat muted thus far. Let’s call  May either side of $46.00/MT, June either side of $45.75/MT, Q3 either side of $45.75/MT and Q4 either side of $45.15/MT.

Scrap:

Market is talking sideways, but on the ground lack of shred is suggesting otherwise, more like up $10/GT. Reality is we continue to have good Busheling flows, almost no Shred or obsolete flows and weak lead times at mills. Shred will move up and bush will be support at least sideways as result. Regardless, the mrkt can’t survive without Shred and the scrap price has to rise despite the mills’ anemic books. This will in turn force pricing higher which will cause those with lean steel inventories to move. Did I say lean inventories. Indeed I did. There is a portion of the market that got out ahead of the price decline and stopped buying many months back, domestic or import, and those companies are now in stages of hand to mouth on inventory and starting move. Don’t let the import inventory glut mask the reality on this front. Meanwhile CFR Turkey is stable at $263/MT zone and mostly covered by European and other flows for what’s needed.

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

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