Hot Rolled Futures: Signs of Tightening

Well signs of a tightening Fed sometime later in the year doesn’t seem to have scared the market away from U.S. stocks. As I mentioned before we were poised to take out the old highs when we held support and, sure enough, we took out the highs today. We are last 2108.50 on the June future, and we are likely headed now to the 2175 zone. As long as interest rates remain low here the market will maintain its bullish stance. The Fed apparently is now targeting a 5.1 percent unemployment rate before they start to tighten monetary policy and raise rates.

Crude looks constructive, last $57.50/bbl. on the June future. This global barometer commodity has had a steady increase in value since its March 18th low at $46/bbl.. and it looks poised to go sideways for about another week where it will meet that same March 18th support line and will have to make a decision to go materially higher or break resistance and consider retesting the low. Copper has had an even longer incline, from about January 20th and looks ready to test its support line again right around here at $2.67/lb zone. We are last $2.6970/lb. on the May future.

Steel:

Signs of tightening don’t only apply to the stock market. They’re appearing in ferrous too. March inventories were down dramatically, and they’ll likely be down a lot more in April. Importers already advising their forward books are off as much as 40 percent and they don’t expect it to return any time soon. Political movements are afoot to give the trade case process more teeth when the inevitable filings eventually arrive. But in meantime we still are still dealing with lower spot prints with CRU down $5/ST again to $446/ST. We have traded 1373 steel futures in the week or 27,460 ST. We have seen the forwards rise a bit except for the very nearby months of May and June. Q3 and Q4 have traded up $7/ST and $2/ST respectively from the lows. We have even seen some further 2016 interest with Jan/Sep trading last at $538/ST. Offers have dried up a bit on bal. 2015 and we expect further increases in Q3 and Q4. Cal ’16 mos. are starting to get some buyer int. and sell liquidity is intact there for the moment around $540-545/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}

Scrap:

CFR Turkey is last $273/MT on legitimate transactions. We have even moved some cargoes off our coasts at higher levels so this relieves the pressure for now from East Coast yards on the MW. Looks like there are rumors of lower scrap in May, but behind the scenes mills are actually getting more orders on contract business, and are even starting to back away from lower levels on steel. I’d say their scrap appetite will support scrap at last levels for now, or even slightly up. MW Busheling zone being the weakest of late of the indexes may not tell the correct story of higher scrap values in most regions, with obsolete grades still scarce.

Iron Ore:

Every day Iron Ore climbs a bit further and every day the rally off the low looks more real. We are last just around $54/MT on the index and the futures remain backwardated, but are moving up in tandem with the front end. Looks like a confluence of inventory replenishment by mills right when cargoes had gone to a trickle. This has caused profit taking on futures which continues to feed further buying, even some length building. $55/MT is technical resistance on the nearbys if we get through there we’re moving higher still in Iron Ore. Let’s call May either side of $52.37/MT, June either side of $52.00/MT, Q3 either side of $50.25/MT, Q4 either side of $49.50/MT, Q1 either side of $49.00/MT and Cal ’16 either side of $48.40/MT.

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

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