Steel Market Update reported that the last week has been significant in the financial markets. We have given up 4% since October 18th 2012 in SP 500, 5.5% in Copper, approx 3% in Gold and 8.5% in Crude. This essentially wipes out the entire gain put in early September 2012. More significant is that technically we have now broken key support at 1420 SP 500 and the market should experience a drop equal to or greater than the entire June to September rally, or another 157 pts to the 1260 to 65 zone. This interestingly enough coincides with the Goldman Sachs analysts prediction that the SP 500 would be at 1250 by year end. Conspiracy theory anyone?
The driver for the drop thus far has been disappointing earnings, no surprise really, and, in the case of commodities, little appetite for the units and even some re-deliveries to exchanges. I just attended the LME week in London last week where it became apparent that even copper units, which have been in chronic shortage, were suddenly available from suppliers as Chinese buyers choose not to book long term contracts this year. Copper has been one of the darling stories this year so a potentially significant development.
Interestingly, whereas most financial markets are in a period of retrenchment, ferrous markets are moving in the opposite direction, or at least trying to. Iron ore continues its rally, scrap, at least international markets, has stopped its decline for now, and has risen slightly. Even steel here at home attempts to change its course.
NYMEX HR:
Having traded close to 30K ST the prior two weeks, all of a sudden the HR market volumes have subsided as the offers continue to back away amidst what appears to be short covering. We traded November 2012 as high as USD 618 per short tonne vs USD 605 to USD 606 per short tonne last week, December 2012 USD 635 per short tonne vs USD 610 per short tonne last week and Q1 is now bid USD 640 per short tonne vs USD 630 to USD 633 per short tonne we traded the week prior. Volume this week has been a modest at 352 lots or 7,040 short tonne. Promisingly, a decent amount of that was on the screen.
NYMEX Billet:
Here too the market has crept up on short cover. Where November 2012, December 2012 and January 2013 have traded as low as USD 510 to USD 513 two weeks back, we crept up to trading USD 515 to USD 518 per tonne end last week and offers this week are just under the USD 530 per tonne area, for January 2012. Bids remain far below still in Billet creeping up just above USD 500 per tonne. Volumes have been non existent this week as offers have gotten too far away for short cover interest.
Iron Ore:
We continue our climb in iron ore. We started the week last week at USD 115.30 on spot and today we printed USD 120 even. The forward curve has been very flat forward with Q4 and Cal '13 maybe USD 1 to USD 3 above. Hard to tell here whether the buying is short cover in nature or if length is really being added. There certainly seems to be a sentiment that the Chinese government will have to do some sort of QE with the arrival of the new leadership, which will lift the market even further.
It is interesting to note that we are currently at exactly the same price level in Iron Ore we were a year ago. Then, Iron Ore went from the USD 120 per tonne area up to $143 per tonne by Feb. 2012. However the difference is that this year we have been much lower already, to USD 86 on spot, and have since rallied 40% off that low. In 2011 we had been as high at USD 170 the beginning of October only to drop to USD 117 by the end of October 2012. So on the surface the markets look very similar, but when one looks at their paths to this price it clearly very different. Inventories in China have dropped somewhat, but overcapacity is still a big problem and possibly Iron Ore's Achilles heel. China’s latest PMI figures for October were below 50 for the 12th consecutive time albeit less bad than the prior month. QE will need to come, and it will need to be impressive to make a difference.
Scrap:
CFR Turkey has climbed as well along with the other markets. Whereas as we had 3 weeks back a low Q1 trade of USD 355 per tonne, and then 2 weeks back Cal '13 offers in the USD 360 to USD 365 per tonne range, we now have Q1 offers more recently in the USD 375 to USD 385 per tonne range. The spot price has also moved up as well USD 5 per tonne this week from USD 372 per tonne to USD 377 per tonne. Despite the increase, comments in London form those well entrenched in MENA were that the market there is not good, suffering from domestic demand declines and pressure from foreign imports. Further, we have not heard from the Turks in quite some time on scrap buys, here or Europe. It is Hajj this week in Mecca so maybe this has delayed action on that front. We'll see.
Domestic scrap expectations are for higher levels in November 2012, up USD 10 to USD 40/GT. The mill price increases have certainly brought in some orders, but not what the mills had expected so it will be interesting to see how much need there will be with 3 to 4 week lead times currently. Dealers have already raised prices at their gates in anticipation of higher scrap prices so flows should improve on the secondary side. The primary side needs no help. We are headed into winter, well sort of, and the dealers can choose to hibernate if they don’t like the levels, unless flows prevent it. That said Natural Gas was pricing in a cold winter this fall only to lose 20 cts in one day as the computer models adjusted for a warmer winter. We'll see. It certainly had an effect last year.
The BUS contract has seen some nice screen flow this week having traded 80 lots or 1600 GT. When the HR contract started it didn't have screen trades for over a year from inception. So this a very good sign for this contract. Interest increases daily as more and more clients sign up to trade. The market has risen from USD 355 on November 2012 to USD 378/GT in the week. December 2012 has risen about USD 10/GT to USD 380/GT level as has Q1 either side of USD 400/GT. Volume interest is lurking in the telephone broker market as well. Hopefully we will see some volume trades in the near term.
Source - Steel Market Update
(www.steelguru.com)
