Steel Market Update News

Fri, 03 Feb 2012 05:00:00 -0500

Written by: Andre Marshall, CEO Crunch Risk LLC

“Futuristic” Meltdown

NYMEX HR:

The slide continues in this “futuristic” meltdown. This week’s prices through 2012 are down another $12.00/ST with Apr and May dropping a stunning $25/ST to $680/ST and July dropping $20/ST to $670/ST. Even February was off $10/ST with one price for February already known at $739/ST. The market feels that we will see lower numbers for the remaining 4 weeks in February. With buyers still scarce, it looks as if the market will have to lower further to see significant volume trade on the futures.

Volume was a respectable $33,980/ST this week. Note below that the CME has just reported that January was a record volume month for the HR contract. At this rate HR will trade over a Million Tons this year v. 545K ST last year.

Scrap:

Warm weather, lack of any serious export opportunities, and inventory overhang are contributing to what looks like will be a down $40-50/T month in primes and a down $20-30/T month in secondary depending on grade and location. This is exacerbated by the fact that mini mill books do not look as solid as integrated books right now with lead times as close to nil as some mills have ever seen in certain zones. Pig, and other iron units continue to overhang market. This may well be the driver that has the physical market converge with what the futures suggesting.

LME Billet:

Billet continues to slide with Cash now trading under $500/MT @ $497/MT and 3’s settling in at $514/MT. Business is lackluster as demand in Middle East continues to wane, Chinese appetite is subdued and Black Sea supplies are looking for outlets. The scrap price here continues to remain too high to provide any opportunistic buying.

Weather:

In China severe weather hampering demand, but not supply, causing inventories to build. Prices are holding as sales are difficult anyway. However, exports to other Asian growth regions like Korea are expected soon. This will displace units to other markets like ours as Europe not healthy enough to absorb. Weather too continues to surprise the scrap market as flows are healthy into yards and look set to continue. Weather definitely adding to the twist in these markets. The general malaise of the global economy however still the underlying driver.

NYMEX Volume:

The CME Group sent me an email advising SMU that the group had set a record volume for hot rolled steel coil futures (HRC) during the month of January with 6,214 contracts (20 tons per contract = 124,280 short tons). The previous record was set in November 2011 with 5,205 contracts (104,100 short tons). The HR Futures and associated markets continue to receive more visibility and SMU recommends those buying and selling steel at least become aware of the various products and how they can be used to either help (or hurt) your company. We have two workshops on the subject: February 9th in Houston, Texas and April 11th at the Chicago Board of Trade (CME Group) in Chicago. Information can be found on our website in the Events section of the site or you can contact our office: info@SteelMarketUpdate.com

Fri, 03 Feb 2012 05:00:00 -0500

Buyers and sellers of flat rolled steel in North America remain positive about their company’s ability to be successful in the current market environment. The latest SMU Steel Buyers Sentiment Index is +43 down 6 points from the +49 reported during the middle of January 2012. The +49 was the highest measurement the Index has seen since its inception the first week of November 2008. The SMU Sentiment Index has been in optimistic territory since the 1st week of December 2010 (13+ months).

Those within the steel industry told Steel Market Update during the survey process that they remain upbeat due to a mild winter, slowly improving demand (and even some rays of sunshine in the construction segment of the market) and solid inventory levels as a number of respondents reported their inventory build to be over.

There were some cautious tones in some of the responses as well with responses like, “Varies considerably by market sector” and “Construction should be steady with limited spots of low growth.” Many in the steel industry expect 2012 results will be very similar to what was seen in 2011. One service center/wholesaler told SMU during the survey process, “We are not expecting any significant change in 2012 from 2011. Business will remain a challenge.”

Steel Market Update has found steel prices and future negotiations for steel pricing can have a positive or dampening impact on how steel buyers and sellers react to the market. Lower prices impacts the value of existing inventory which can create issues – especially within the service center community. At the moment market prices appear to have hit a plateau and are in “transition” as the market tries to determine if they will move sideways or lower from here. Although both our SMU price indexes and now Sentiment have broken lower over the past few days (see chart to the right).

SMU Future Sentiment at +55

Steel Market Update Future Steel Buyers Sentiment Index declined 8 points since the middle of January and is now being measured at +55 – well within the optimistic parameters of our Index. The Future Sentiment Index measures how buyers and sellers of flat rolled steel feel about their company’s ability to be successful three to six months into the future.

About the SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to over 700 North American companies to participate in our survey. Our normal response rate is approximately 150-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.

Fri, 27 Jan 2012 05:00:00 -0500

Written by Andre Marshall CEO Crunch Risk, LLC

Financial Markets:

The big news in the financial markets occurred yesterday when the Fed stated that they foresaw an extended period of slow economy and therefore low interest rates well into 2014. I’m not sure how that message has really been any different than what they have been saying for some time, but nonetheless it caused short-covering in currencies and commodities causing the USD Index to drop almost 1%, the Gold market to rocket up 3+% and Copper to rise 1+%. Stocks also halted a slide and ended up marginally on the day.

The reaction is US Dollar related. That is if weak rates here then weak USD as well which would equal inflation in commodities which priced in USD’s. It appears as if there were a number of participants expecting some sort of inflation to come out of this slight economic improvement we have been seeing of late and were positioned accordingly. The Fed officially dressed down those foolish beliefs. No light at the end of the tunnel yet, in their view.

NYMEX Hot Rolled Coil

For some time now we’ve looked like a bit of an island here in North America with impressive prices in steel and scrap when the rest of the World’s prices have suffered. When looking at U.S prices they are at historical premiums to European steel, to Chinese Steel and to Iron Ore. The spread to Iron Ore for instance has reached $600 ST to MT. Logic would dictate that either those markets have to improve or our markets have to come down.

Well the futures market has sold off this week and our island we’ve been on appears under siege and now also possibly cracking from within. Domestically it has been a story of haves and have-nots with some mills with good books into March and other mills begging for orders with two week lead times.

Some mills have been holding their prices while others have been quietly cutting deals at apparently much lower levels to large buyers.

Imports pressure has contributed to the mood with Mar/Apr metal having infiltrated the pricing scene offering material at levels as much a $7.00/cwt below domestic. Despite its limited reach the effect of it does appear to be weighing sentiment with buyers. The island has literally been assaulted from the South (Russian), the Southwest (Mexico), the West (China – finished) and even the East (Italians).

Pig Iron too remains prevalent, continuing to keep a lid on prime scrap levels, particularly in the South. Some mills are apparently quite long already with more material being offered. Demand in general appears quite good, maybe even growing, but it’s a question of whether domestic supply, and the effect of the world’s excess can be absorbed here. The futures market thinks it can’t.

The futures market this week is down on average $13/ST since last Thursday. July trading today at $685 down from $700 last week. From April on it is down on avg. $17/ST. Friday last week was a good volume day with 31,904 Short Tons trading. This week in total 36,640 tons have traded.

Scrap

Well reported that Shred has already traded down $30 from one broker who was too long. This been followed up with deals at $10 and $20 down. All before Feb. even starts. Weather is the culprit and hoarders apparently are the fuel. Most in the know expect a down month of $20-40 down with Primes suffering the worst due to Pig Iron overhang. The Turks haven’t really helped having been out except for two cargos that just traded $20/T down, which was $10/T worse than expected.

LME Billet

LME Billet has been quiet. It’s price has slid down to the low $500’s, trading $505-520 area. Cash settle today is $509/T and 3’s is $517/T. The Turks have been quiet. The middle east outlets are subdued as their economies there continue to limp along in this spring revolution environment. Iran is blockaded and Syria is no help in its own turmoil. Europe as well is limping along and China is on holiday. Expectations for this market are subdued. The stronger USD means their appetite for our scrap will remain limited.

Iron Ore

Iron Ore limps along in the $135 zone with a back-wardated curve, running from $18 spot out to $125 mid 2013. Inventories remain high, and expectations rest completely on what the Chinese will or won’t do. Any length taken is in anticipation of a strong return by the Chinese. Time will tell if there is renewed growth expectations there.

NOTE: Steel Market Update and Andre Marshall, CEO of Crunch Risk along with the CME Group will conduct our next HR Futures, Options and OTC Swaps workshop in Houston on February 9th. You can find out more information and register on our website or contact our offices at 800-432-3475.

Our next Chicago based workshop on the topic will be on April 11, 2012 and will be held at the Chicago Board of Trade and will include a tour of the CME Group trading pits. The program and registration should be up on our website sometime on Friday of this week and/or you can contact our office for more information and to register.

Thu, 26 Jan 2012 05:00:00 -0500

Last year steel prices climbed at a brisk pace between the beginning of January through late March. The first week of January our SMU average for hot rolled was $720 per ton and by the week of March 22nd prices had climbed to $890 per ton. Over an eleven week period prices rose by $170 per ton.

So far during the first few weeks 2012 hot rolled prices have moved from $725 per ton to $745 per ton (+$20) and have “paused” at this point at the $740-$750 offer level. We believe there are reasons for this pause.

Scrap prices are now poised to begin surrendering some of their gains as ferrous scrap is forecast to move at best sideways to as much as $30 per long ton lower than in February than at the beginning of January. We have already seen lower prices as steel mills in Ohio and further east have bought shredded scrap on the spot market down $10 to $20 per long ton from what was reported at the beginning of the month.

The domestic mills (and steel buyers) are concerned about two areas which will be impacting the domestic market – increased capacity and imports. To use the words of James Wainscott the CEO of AK Steel on their earnings call with analysts this morning, “In terms of the state of competition as you know, it’s a tough business that always is and I think a lot of people focused on increased capacity coming online and sort of how does that play with imports. So I think we are probably at or neared inflection point. We haven’t seen a big rush of imports but, I think we continued to hear more and more at these pricing levels that some of that may come….” The key word is “inflection point” which is the point at which the curve begins to bend and head in another direction. In this case, we would interpret this to mean prices may be at their peak (or close to it) and may need to move in another direction in order for the domestic mills to compete with imports (and one another). Although later in their conference call AK Steel told the analysts they believed prices would go higher from here.

However, AK Steel was not the only company to use the words “inflection point” with us in conversations today. A manufacturer provided the following detail regarding their viewpoint of the market:

“ I think the market is approaching an inflection point.

I have five main areas of concern right now, in no particular order of importance:

· Scrap is up currently, but warmer than normal weather throughout the country is increasing typical availability and will be driving scrap prices down.

· Forward NYMEX Hot rolled pricing is in backwardation

· Import licenses are up and rising

· Both Severstal and RG appear to be getting organized and aggressive in selling “new” capacity... Severstal particularly

· China growth appears to have peaked already and steel produced from there needs an outlet.

If Hot rolled touches or even exceeds $800 this year it will surprise me, but stranger things have happened. If it happens it will likely be short lived, but at this point, I don’t see it in H1.”

The manufacturing company buyer finished his email to SMU with the following: “It appears that the bloom is coming off the rose…springtime is coming early this year?

Steel Market Update has not officially recognized the new RG Steel numbers which one service center pegged at $30 per ton or more below the other domestic mills in the Northeast. However, once the “L” blast furnace comes up and the mill can prove it is reliable – there will be an impact. We project that impact to be about 30-60 days out into the future. We understand ThyssenKrupp Steel USA is also aggressive although not necessarily at the RG Steel levels. Severstal Columbus and Dearborn both have new pieces of equipment, ArcelorMittal will increase capacity out of their Cleveland works by early April and USS Hamilton is back.

We see prices as stabilizing at the current levels and we are moving our SMU Price Momentum Indicator to Neutral from Higher. From our perspective there are too many issues which need to be digested by the domestic industry before prices can surge ahead. A Neutral reading means a change in pricing direction may occur within the next 30 days or prices could remain stable during this time period. SMU is not predicting a dramatic drop in steel prices as demand appears to be decent and the domestic mill lead times have not collapsed.

We appreciate your comments and opinions which you can send directly to: John@SteelMarketUpdate.com

Fri, 20 Jan 2012 05:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

In last week’s issue we informed SMU members that Hot Rolled Coil (HRC) futures prices on the CME were on the verge of topping out and reversing course. And that is exactly what happened this week.

HRC prices on the CME fell by an average $12 per ton this week for calendar year 2012. The 4th Quarter 2012 was particularly hard hit with prices dropping $19 to $686 per ton at yesterday’s close. February and March seem to be holding up the best with prices between $725 and $730, but the selling pressure remains fairly heavy from April through December.

HRC futures volume this week was strong – even in spite of the CME being closed for holiday on Monday. Volume this week surged 39% versus this time last week on the CME U.S. Midwest Hot Rolled futures contract with 16,760 tons (838 lots) changing hands. Seller’s were anxious to unload their positions this week.

Following are yesterday’s settlement prices by quarter as compared to our report from last week:

Q1-2012 at $729 (Down $11), Q2-2012 at $713 (Down $12); Q3-2012 at $700 (Down $5) and Q4-2012 at $686 (Down $19).

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each individual month through December 2012:

LME Billet Remains Soft

The three month LME steel billet price was trading today in the $535 per metric ton range unchanged from last week but down $20 since January 1. The three month LME billet peaked on December 13 at $575.

The LME billet Cash market was trading today at $520 per metric ton down about $10 per ton from last week but down $40 so far since January 1. The Cash LME billet peaked on December 16 at $565.

February Scrap Prices Trending Down

Sources tell us that shredded scrap has already traded down $30 per long ton from early January levels.

We’ve also been told that shredder operators are dropping their scale prices in anticipation of lower shred prices in February. The mild winter weather patterns have enabled a strong, uninterrupted flow of scrap into dealer yards so far this month and scrap dealers do not want to be caught with excess inventory heading into a falling market.

Further adding to the negative sentiment are reports that pig iron is currently oversupplied which is dampening demand for scrap at numerous steel mills.

Fri, 20 Jan 2012 05:00:00 -0500

Early Bird Discount Expires at End of Day on Friday, January 20, 2012

We are learning from past attendees to our Steel Market Update / Crunch Risk / CME Group workshop regarding Price Volatility / Hedging Price Risk has resulted in a number of trades being made as well as new price volatility strategies being implemented at service centers and manufacturers.

Earlier this week SMU was in communication with a manufacturing company which actually has sat through two of our workshops. The company was resistant to SMU referencing their name or trades because they feel the learning experience has provided them “a competitive edge” against their competition.

Steel Market Update began offering our Hedging Price Risk workshops to those within the steel community who recognize markets change and the existence of price volatility is with us as long as China, India, Brazil and other countries around the world compete for resources and supply or consume steel products in such as way as to tip the balance of either supply or demand resulting in wild price swings around the world.

We also looked at the Futures markets as being potentially a better way to buy and/or sell steel. One service center called us to complain about one of their competitors beating them out of contract business. During the course of the conversation we learned the culprit was their competition understood and were able to use the HR Futures markets to control pricing to the end user.

In our last conference which was held at the NYMEX in New York City, one of the manufacturing companies attending did so with one of their service center suppliers. We thought this was very creative and probably added a tremendous amount of value to both the service center and end user since they were being exposed to the same information at the same time – and then having time to discuss areas of confusion (or opportunity) with Crunch Risk or CME Group representatives.

CME Group finds our program to be of such value they have dedicated having a CME representative at all of our workshops and this includes our next workshop which will be held in Houston, Texas on February 9, 2012. You can find out more about the program on our website – be aware we have added an Options section to the workshop since the CME Group has come out with a new Options trading product.

Andre Marshall, CEO of Crunch Risk, LLC is the primary instructor for our workshop. Andre has been and continues to be one of the primary brokers within the HR Futures market and many companies rely upon Andre and his contacts to supply liquidity to the markets.

Our workshops are more than one instructor lecturing those who are in attendance. The Steel Market Update philosophy has always been one which encourages participation and interaction between the instructor(s) and the participants. In our normal workshop configuration we have Andre Marshall as our main instructor. Accompanying Andre is Jack Marshall also of Crunch Risk, John Packard from Steel Market Update (John has 31 years of active steel experience) and a representative from the CME Group.

What Kind of Companies Attend our Workshops?

Steel Market Update has a wide audience and our workshops have already attracted numerous steel mills, trading companies, service centers and manufacturing companies. What we did not expect is a number of the other brokers working on HR Futures have also attended our workshops. At the moment, all of the attendees currently registered for our Houston workshop are manufacturing companies. In the past our workshops tended to have good manufacturing participation with a smaller portion of service centers and producers in attendance.

Registration & Discount Information

Registration for the February 9th workshop is open and we have a number of discounts available. Steel Market Update member companies receive a $100 per person discount. If your company registers three or more people there is another $100 per person discount. We also have an Early Bird Discount of $100 per person for those who register by the end of the day on Friday, January 20th.

After Houston – Chicago at the CME Group – April 11, 2012

If you have any questions about this workshop or any future workshops (next one after Houston will be in Chicago on April 11, 2012 which will include a tour of the CME trading floor) please contact our office at: 800-432-3475 or send us an email at: info@SteelMarketUpdate.com. Our website address is: www.SteelMarketUpdate.com and you can find our workshop in the Events section of our site.

You are also welcome to contact Andre Marshall at Crunch Risk, LLC. He can be reached at: 713-401-9146 or by email at: Andre.Marshall@CrunchRisk.com

Fri, 20 Jan 2012 05:00:00 -0500

Both Current & Future Sentiment at Record Highs

Buyers and Sellers of flat rolled steel continue to remain optimistic about both the short-term and longer-term future of the steel industry and their company’s ability to be successful both now and in the future. According to the results of our latest Steel Survey the Steel Market Update Steel Buyers Sentiment Index was measured at +49 setting a new record high for our Index.

SMU Steel Buyers Sentiment rose by +8 points compared to the beginning of the month of January when it was last measured. This is only the third time our Index has reached the +40 mark having briefly touched +40 in early April 2011.

The steel buyers and sellers who participate in our bi-monthly survey reported business conditions as improving as steel prices have been rising but at a moderate pace (+$130 per ton since November 8, 2011 as compared to +$245 during the same time period one year ago) and demand has also been improving at a slow but steady pace.

A manufacturer connected to the construction industry, which has been the weakest component of the U.S. economy, told SMU during the survey process that they were, “…seeing small upticks in our business.” Another manufacturer also involved in the construction industry reported their business as being “steady, not brisk but steady” due to “moderate winter weather” which has helped keep business “better than expected.”

While a regional service center was even more upbeat when they told SMU, “January and early February looks like everyone is refilling their empty shelves.” A manufacturer agreed and told Steel Market Update, “We are busier now than any time since 2008.”

This week’s +49 is the highest reading recorded for the SMU Steel Buyers Sentiment Index since we began measuring Sentiment in November 2008. The lowest reading was a -85 recorded during March 2009.

SMU Steel Buyers Future Sentiment Index at +63

Steel Market Update Steel Buyers Future Sentiment Index continued to be firmly entrenched in the Optimistic zone having been measured at +63 during our Steel Survey conducted during the first three days of this week. The +63 reading is the highest reading recorded since we began measuring Future Sentiment in November 2008. The latest reading is +1 point better than the +62 recorded at the beginning of January 2012. The lowest reading ever recorded for Future Sentiment was a -38 during March 2009.

Steel buyers and sellers are reporting to Steel Market Update of “optimistic signals” coming from the marketplace which leads them to believe business will continue to improve in North America over the coming 3-6 month period.

About the SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to over 700 North American companies to participate in our survey. Our normal response rate is approximately 150-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.

Fri, 13 Jan 2012 05:00:00 -0500

What options does a service center have when prices are falling and an offer is made by a mill to buy extra tonnage at reduced prices? In these volatile steel pricing markets this is a question which challenges service center executives on a routine basis.

In the past there were essentially two options for moving the excess material into the market: 1) get your existing customers to increase their purchases (normally with some sort of incentive attached) or, 2) sell the product into the open market at below market pricing.

The historical result for many service centers is increased volume at a cost to margins and the potential to damage existing spot market pricing.

Alliance Steel Makes a Trade

After one of their employees attended one of Steel Market Update (SMU) Hedging Price Risk workshops, Alliance Steel CEO and President Andy Gross had a better idea. Based on his professional opinion and experience at the time his deal was made, he believed prices would be depressed for a short period of time and then would jump back as we entered the New Year. His idea was why sell at the existing depressed market prices when Alliance could sell the steel after the beginning of the New Year and take advantage of the higher spot pricing.

However, Alliance’s CEO, with company’s CFO Mike Garvey’s input, decided to “hedge” their bet. Since the purchase price of the steel in September was well below the Hot Rolled Futures curve offers to buy in November, December and January they decided to protect a portion of margin by selling futures.

Mr. Gross explained his thinking to Steel Market Update at the time of the trade as follows: The company has thousands of tons of inventory and while there is price risk on ALL inventory, Alliance felt that it would be a stronger bet to hedge a small portion of their inventory in order to shelter profits vs. selling into a depressed fourth quarter market .They determined, with the help of Andre Marshall of Crunch Risk, LLC who was their broker in the transaction, that there was a market available for them to sell off a portion of their risk in equal segments for the months of November, December and January. At the time of the trade, futures were able to be sold at $670 to $690 per ton for the three month period in question. At that time the CRU index was $698 per ton the week of September 19th.

Was the Trade Worth the Effort?

Since the original trade was made, SMU followed up with Alliance Steel to see how they fared and if the trade accomplished what they had originally intended.

We spoke with Alliance Steel CEO and President, Andy Gross earlier today and asked if their first trade was worth the effort. He told Steel Market Update, “The general answer is yes it worked…but until we have all of the data we really won’t know for sure.” He went on to say, “We made money on the November contracts, lost a small amount of on the December contracts and will lose a significant amount on the January contracts. These should be offset by changes in our actual selling prices between November and January.”

Alliance Steel sold hot rolled futures for the months of November, December and January. The price at which they sold included all broker commissions. The original trade was made OTC (over-the-counter) which allowed Alliance Steel the convenience of being able to utilize their company’s financial strength in the development of a line of credit with their broker as opposed to opening a margin account to accommodate the daily fluctuations which occur in any trade.

At the time of the original trade the CRU hot rolled coil price assessment was $698. Timing is everything as the day after the trade was consummated the CRU assessment adjusted lower by $14 per ton for the first time after having risen the prior five weeks.

By the end of November the CRU weekly assessment of Hot Rolled Coil was $653 and their monthly average for November was $632 per ton. Settlement of the first Alliance Steel trade was based on the CRU monthly average of $632. They sold at $670 and settled at $632 with the difference being in their favor which resulted in a monetary gain of $38 per ton.

At the end of December the CRU average was $686 for the month. This was higher than the previous month by $54 per ton. Based on the Alliance Steel sell price of $675 the difference was out of their favor which resulted in a monetary loss on the trade of $11 per ton.

Flat rolled spot selling prices tend to move more or less in tandem with prime flat rolled prices with perhaps a bit of lag time between the two. When the steel was originally purchased our SMU price index on hot rolled was in the mid-$600’s. We did not ask Alliance Steel what they paid for the material they were hedging but we will assume, based on the size of the company that they bought well and were at the lower end of the price range.

Since then spot prices moved lower until early November when the domestic mills began the latest round of price increases. As of today (January 12, 2012) hot rolled spot pricing is $730 per ton or approximately $80 per ton higher than at the point in time when the steel was purchased. According to the Company’s CFO, Mike Garvey, through the use of the Futures market, Alliance Steel, “…was able to protect itself against sharper market declines during this period at the expense of giving up potentially higher margins on this volume of steel.”

When asked if Alliance Steel would do it again Alliance Steel CEO & President Andy Gross replied, “Hell yes, anything that allows us to make additional advantageous purchases by limiting our risk is something we are interested in as we gamble every day in our business and need tools like this to limit our risk!”

Alliance Steel

Alliance Steel is a large flat rolled steel service center headquartered in Bedford Park, Illinois. The company was founded in 1999 as an off-shoot of its sister company, Alliance Steel Processing (founded 1971). Alliance Steel has a modern facility which includes multiple high end slitters as well as a precision Multi-blank cut line and also a narrow degreasing/brushing line. The company processes and sells hot rolled/HRPO, cold rolled, galvanized, aluminized and electro galvanized flat rolled steels to manufacturers and other service centers. The company has fully staffed sales offices in Atlanta, Memphis and Bedford Park.

Steel Market Update is holding its next Hedging Price Risk Workshop in Houston, TX on February 9, 2012. SMU is working in conjunction with Andre Marshall or Crunch Risk, LLC and the CME Group. Please click here for more details on this workshop. If you would like to see the full program, click here. You may register for this workshop now by clicking on this link and filling out the form.

Fri, 13 Jan 2012 05:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

Hot Rolled Coil (HRC) futures prices on the CME seem to be on the edge of topping out this week. The first half of 2012 was up $4 per ton and the second half of 2012 was flat. The HRC futures market seems to be expecting prices to crest in February or March and decline after that. The average price for the 2012 HRC settlements this week was $719 with the prices peaking in Q1 and declining after that.

HRC futures volume this week was higher by about 25% versus this time last week on the CME U.S. Midwest Hot Rolled futures contract with 12,080 tons (604 lots) changing hands. When a market has been increasing for a while, an anemic price increase coupled with high volume is a bearish sign. It warns of a possible price reversal. We will watch volume closely for clues this coming week.

Following are yesterday’s settlement prices by quarter as compared to our report from last week:
Q1-2012 at $740 (Up $3), Q2-2012 at $725 (Up $5); Q3-2012 at $705 (no change) and Q4-2012 at $705 (no change).

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each individual month through December 2012:

LME Billet Ticks Up, but Still Depressed

The three month LME steel billet price was trading today in the $535 per metric ton range up $10 from last week but down $20 since January 1. The three month LME billet peaked on December 13 at $575.
The LME billet Cash market was trading today at $530 per metric ton up about $5 per ton from last week but down $30 so far since January 1. The Cash LME billet peaked on December 16 at $565 and is down $35.00 from its recent peak.

January Scrap Prices Fizzled

As has been reported in SMU, ferrous scrap prices fizzled after an initial spurt the first week of January. Sensing weakness, Turkish scrap buyers have stepped away from the market further dampening expectations for the February scrap market. Continued strength of the U.S. Dollar makes scrap originating from Europe a better value than scrap originating from the U.S. Reports are that there are plenty of U.S. scrap cargoes waiting to be sold. The mild winter weather is only serving to keep scrap flows high which adds to supply.

Next Price Volatility / Hedging Price Risk Workshop – February 9th – Houston, Texas

Our next Hedging Price Risk workshop – which has been upgraded to include information about Hot Rolled Options – will be held in conjunction with Crunch Risk, LLC (Andre Marshall is our instructor) and the CME Group in Houston, Texas on February 9th. You can find out more about our program and how to register for the workshop on our website: www.SteelMarketUpdate.com

Discounts are still available for early bird registration, SMU members and for groups of 3 or more people.

Mon, 09 Jan 2012 05:00:00 -0500

Current Sentiment Rises +9 Points to +41

Steel Market Update (SMU) Steel Buyers Sentiment Index rose +9 points since the middle of December and is now at +41 the highest level recorded since the index began in November 2008. The previous high for our Index was +40 which was recorded the first week of April 2011. One year ago SMU Steel Buyers Sentiment Index was 16 points lower at +25.

Steel buyers and sellers expressed optimism regarding their company’s ability to be successful in the current market environment.

Adam Woods, Chief Operating Officer of the Haydon Corporation told Steel Market Update, “I am more optimistic about 2012 than I have been about any year since 2008.” His sentiments are being reflected in our SMU Steel Buyers Sentiment Index which is clearly entrenched within the optimistic range.

In early November 2011 our SMU Steel Buyers Sentiment Index at +7 was at its lowest point since the middle of December 2010 when it was measured at +2. The domestic steel mills began announcing the first round of price increases during the first two weeks of November 2011 and the price cycle has been for prices to move higher since that point in time. Rising steel prices improves existing inventory values and allows both buyers and sellers an opportunity to improve margins. Many steel contracts are protected against a surge in spot pricing as they are attached to indexes which tend to lag the market.

The combination of prices firming coupled with gains in demand along with the potential tightening of supply related to the idling of the RG Steel Sparrows Point “L” blast furnace are attributing to the general sense of well-being being expressed by our SMU Steel Buyers Sentiment Index.

Those associated with Construction industry in North America were the lone voices expressing negative feelings about their company’s ability to be successful. A manufacturer associated with the construction industry told SMU, “Given the continued squeeze on margins the business conditions are bleak. Sell more at same low margins or focus on higher margin areas and reduce overall revenue?? No real wins in sight for construction it seems so stay the course and hope the natural course takes care of the weaker companies.”

SMU Future Steel Buyers Sentiment at a Record High

Steel buyers and sellers also expressed optimism regarding their company’s ability to be successful looking out 3-6 months into the future. For the first time since we began collecting our SMU Steel Buyers Future Sentiment Index data points our Index has exceeded +60 and is now +62. This is a +8 improvement over the +52 recorded in the middle of December and is +12 points better than one year ago.

The lowest reading produced during calendar year 2011 was +25 recorded at the beginning of October which was the low point in the last cycle. Since then our Future Sentiment Index has risen by +37 points to its current level.

Since November 2008 when we first began measuring Future Steel Buyers Sentiment the lowest reading recorded was -40 which was achieved in the middle of January 2009. This week’s +62 reading is the highest reading recorded since we began collecting Future Sentiment data.

About our SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to over 700 North American companies to participate in our survey. Our normal response rate is approximately 150-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.

Fri, 06 Jan 2012 05:00:00 -0500

Written by: Joseph P. Reinmann, CEO of Kataman Metals

I would like to wish all of the SMU members a happy and prosperous New Year.

Hot Rolled Coil (HRC) futures prices on the CME continued to head higher this week increasing $11 per ton for the first half of 2012. But for the second half of 2012 the futures were flat. And as we look at the forward curve as depicted on the table below, the HRC futures market is indicating that February will be the high point in this current cycle. The average price for the 2012 HRC settlements this week was $716.50, but it’s interesting to note the downward bias by quarter:

Q1-2012 at $737, Q2-2012 at $720; Q3-2012 at $705 and Q4-2012 at $705.

Volume was moderate this week on the CME U.S. Midwest Hot Rolled futures contract with 9,600 tons (480 lots) changing hands.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through December 2012:

LME Billet Prices Surprise to the Downside

The three month LME steel billet price settled yesterday at $525.50 down $30.00 so far in this new year. The three month LME billet peaked on December 13 at $575 and is now down $50 from its peak three weeks ago.

The LME billet Official Cash Settlement price settled yesterday at $525.50 down $34.50 so far in this new year. The Cash LME billet peaked on December 16 at $565 and is down $39.50 from its peak.

The direction of LME billet prices usually foretell what is about to happen next in the ferrous scrap markets. But those two markets – scrap and LME billet – have inexplicably diverged over the past three weeks.

January Scrap Prices Up Strong

Despite the $30 per ton drop in billet prices this week, U.S. scrap prices have soared by as much as $30 to $50 per ton this week. These two markets – which are historically closely correlated – have diverged by a surprising $80 per ton this week alone and by as much as $100 over the past month. It is inconceivable that scrap and billet can remain so far out of their normal relationship and we expect that over the next month that the difference between these two markets will revert to the mean. And the only way these two markets revert to the mean is if Billet goes up or scrap goes down.

Note: Our next Hedging Price Risk workshop will be held in Houston, Texas on February 9, 2012. For more information go to www.steelmarketupdate.com/events

Wed, 04 Jan 2012 05:00:00 -0500

On Friday, December 23rd RG Steel informed their workers at the Sparrows Point plant of their intention of shutting down the steel making end of the mill. According to Steel Market Update sources the “L” blast furnace – which is the only blast furnace at Sparrows Point – had been down for maintenance and would not be brought back online.

Over the Christmas to New Year’s Holiday week only a couple pieces of finishing equipment were running however, at the end of last week our sources advised SMU essentially all of the finishing equipment (hot mill, cold mill, galvanized/Galvalume and tin mill) would be running this week.

Late last week RG Steel came out with their lead times to their customers. All lead times for all facilities were presented as “Inquire” without further information.

Local media in the Baltimore, Maryland area were able to get a copy of a letter sent by the Maryland governor to the CEO of General Electric. There was more information about what was transpiring in the governor’s letter than what had been provided to either the media (including our own inquiries to RG Steel) or to their customers. Here is what the Maryland governor had to say:

“Thank you for your leadership on [President Obama's] new Council on Jobs and Competitiveness. The Council represents the kind of targeted efforts we know our country needs to create more jobs and opportunities for Americans.

Consistent with your work through the Council, I am writing to ask for your assistance in stabilizing the financial arrangements that helped build R.G. Steel, America’s fourth largest steel company. As you know, R.G. Steel provides 5,000 jobs to Maryland, West Virginia, and Ohio – over 2,000 of which are in Maryland.

It is my understanding that G.E. Capital led 10 other institutions in financing the stock purchase sale that created R.G. Steel, including an agreement to provide R.G. Steel with an initial credit revolver. As part of its consideration, R.G. Steel put forth significant collateral, the value of which far exceeded the revolver. Nevertheless, I am told, R.G. Steel’s liquidity is now unstable, in large part, because of a decision by G.E. Capital and other financing institutions to shift substantial funds that are needed to support business operations to “reserves,” to further collateralize and secure the loan. R.G. Steel feels that this decision has frustrated its efforts to improve its liquidity situation and runs counter to the purpose of the financing arrangement, forcing it to begin laying off workers.

This company has the will to fight for success, as demonstrated by its parent company, the Renco Group, through its infusion of more than $160 million in cash following the initial transaction. On December 24th, The Wall Street Journal reported that steel prices are on the rise. In addition, R.G. Steel has restructured its operations and instituted substantial cost reduction measures.

Furthermore, management is projecting positive cash flow by the 1st Quarter of 2012. As you are no doubt aware, R.G. Steel’s Sparrows Point plant in Maryland has already notified workers of pending additional layoffs, putting over 2,000 workers and their families in jeopardy. It would be a terrible situation if, despite significant positive data, employees of R.G. Steel unnecessarily face termination in the New Year. These are good-paying jobs that help sustain families, and in this fragile economic recovery, we simply cannot afford to lose them if other options exist.

Thus, in the spirit of the Jobs and Competitiveness Council and our nation’s progress on the road to recovery, I ask that you personally review this situation and any further considerations by G.E. Capital that may affect these jobs and the stability of R.G. Steel to achieve the turnaround it projects.

R.G. Steel does not request additional cash but that G.E. Capital and its partner financial institutions forego some excess reserve requirements. This request was initially rejected, but your assistance could make the difference that saves 5,000 jobs.

Please work with your colleagues to reconsider G.E. Capital’s decision and give R.G. Steel the resources it needs to truly leverage the financing arrangement for success.

Thank you for your time and understanding. Please do not hesitate to call and discuss potential resolutions to this matter any time.

I look forward to hearing from you.

Sincerely,

Governor Martin O’Malley”

As of Tuesday morning there was nothing new to report and our efforts to get more information or any kind of a statement from RG Steel was met with silence.

Tue, 27 Dec 2011 05:00:00 -0500

On the morning of Friday, December 23rd, Steel Market Update learned from various market sources of the shutdown of steel making operations at RG Steel Sparrows Point. Local media sources such as the Baltimore Brew and Baltimore Sun began reporting the closure of the mill on Friday morning and the Baltimore Brew published the union note which went out to the USW members at Sparrows Point regarding what they were describing as a “temporary” situation.

There is much confusion in the marketplace about the RG Steel Sparrows Point “situation” and here is what we know on the subject as of late this morning.

First, on Friday Steel Market Update published the following article on our Blog:

RG Steel Sparrows Point steel making operations are not operating at this time. Our sources tell SMU the “L” blast furnace went down for maintenance earlier this week and has not restarted. Comments from the local press indicate the furnace is being “banked” which means steel making operations have ceased at the mill.

According to our sources, iron ore vessels scheduled to discharge at the Sparrows Point mill have been turned away. However, there does appear to be one ore vessel in port at Sparrows Point – the Unicorn Ocean. Without iron ore steel making operations cannot resume.

Our sources are telling us the slab inventory at the mill is low and that the hot mill will not be able to operate for too long – maybe two weeks is the speculation.

The understanding is the cold mill and the one operating coating line will continue to finish in-process inventory.

Our understanding, without official mill confirmation as our inquiries with official mill channels have not yet prompted a response, is the mill is being shut down indefinitely.

Local press reports including the Baltimore Brew and ABC News reported reviewing an email from a union representative at Sparrows Point to their members. The email said in part, “…Your union and the company is hard at work to resolve this. I promise you that. Please don’t do anything to destroy our chances to save our plant, our mills, our livelihoods.”

The Sparrows Point plant employed about 2,200 workers. Many of them received their “pink slips” just two days before Christmas.

RG Steel purchased Sparrows Point and its 3.5 million ton production capabilities – along with other former Severstal mills – Warren and Wheeling-Pittsburgh as well as other assets. Combined, the RG Steel mills had the potential to produce approximately 7.0 million tons. The steel making at Wheeling-Pittsburgh has been idle prior to the purchase by RG Steel and was not restarted by the new owners. The blast furnace at Warren has been producing steel and it is unclear to us at this time if there are plans to shut it down as well.

Steel Market Update spoke with a number of steel mills on Friday to see if their order book was being impacted or how they were reacting to the news regarding Sparrows Point. The mills with whom we spoke told us they had closed their order books and had suspended any open negotiations with customers. Most mill sales offices will be closed until Tuesday and the expectation was that it would take a few days to figure out the impact on the market.

Our expectation is those mills that have not officially announced or followed the third price increase would do so early next week. This would take hot rolled to $750-$790 per ton.

We would also anticipate a potential fourth round of increases once scrap prices are settled for January. Right now the market anticipates an increase of somewhere around $30 to $70 per gross ton.

One thing is for sure. The next few weeks will prove to be interesting for those of us involved in the flat rolled steel industry….

RG Steel Sparrows Point Update as of Today

We have learned from Baltimore Brew reporter, Mark Reutter, that the finishing end of the mill is closed this week as well as the hot, or steel making end of the mill. The Baltimore Brew also put out an article today regarding some of the failings of the Sparrows Point mill.

That is what the local press is reporting.

Our sources have conflicting information and we believe the reality is the hot strip mill and other finishing mills are operating this week and running inventory which is behind the lines and available for further processing.

There was a conference call with the sales or commercial side of the company this morning (Tuesday) and what we have learned is Sparrows Point has slabs which can be finished and other inventory which will allow the finishing end of the mill to run for a period of time. The customers with whom SMU spoke were not able to provide specifics regarding their particular orders (for example: one customer had cold rolled and coated orders on with the mill but the order status showed behind hot strip mill – they did not know if that meant the slabs had been produced and were physically at the hot strip mill for rolling). But, customers were being told the hot strip mill, cold mill and coating lines would produce from inventory and take care of existing customer orders.

If you are a RG Steel Sparrows Point customer we recommend you speak with your sales person to get more information about the status of the plant and specifically regarding your orders.

Customers were also told the company is looking for a new financial partner.

Lastly, customers were being told there will be a company press release or some form of statement to help clarify the situation for their customers. Steel Market Update has requested a formal statement from the company and we will advise what the company has to say on our blog once it becomes available.

We spoke with a number of Sparrows Point customers who told SMU they would not be “happy campers” if the mill ceased production and did not finish the orders they had on with the mill. At the same time one buyer told Steel Market Update, “I’m not going to do it again [order more steel from Sparrows Point]. That is what I told my salesman.”

The situation continues to be “fluid” and our recommendation is to not panic and speak with your RG Steel and other steel suppliers to ensure there will be no hiccups in your operation and then wait and see how the company and the competition explain and react to the competitive markets.

Bottom End of Price Ranges Expected to Rise

They went on to say, “I think there will be a real market shock” from the shutdown. RG Steel was the low-priced mill on the East Coast and if they are taken out of the pricing mix for a period of time this will have an impact on prices in their geographical region of the country. Other areas of the country were already at much higher prices and the impact of Sparrows Point will have less of an effect on their prices.

Steel Market Update has spoken with a number of mills and learned some have put new quotes on hold until the situation is better understood. Others held orders late last week but reopened their order books this morning. Our expectation is the bottom end of our range will tighten up while there may not be an immediate impact at the top end of the range.

One mill advised us they were still studying the AK Steel price announcement made last week to see what it means in reality. There is quite a range at the upper ends of the market. We are showing the upper end of the range (quotes-not transactions) as being $740-$790 per ton. Many mills have yet to respond to the latest (3rd Round) of price increases which have come from RG Steel, ArcelorMittal Dofasco and AK Steel.

For the rest of this week information regarding the RG Steel situation will be posted on our Blog. Our next official newsletter will be published on Tuesday, January 3, 2012.

If you would like to become a member of Steel Market Update, we have a special holiday offer for all new subscribers where you get two months free of our membership. This offer expires soon on January 3, 2012; so take advantage of it now. Please email Sophia@steelmarketupdate.com to find out more on this offer or to pay. You can also call 1.800.432.3475 for more information.

Fri, 16 Dec 2011 05:00:00 -0500

By Andre Marshall CEO Crunch Risk, LLC www.CrunchRisk.com

Financial Markets

As the resolution of the agreement on the European Debt crisis ended the pressure lifted on the US Dollar (USD) which has sprung upward since. This has been happening since Monday having increased 2.5% approximately in 3 days. The USD index has now taken out its October high and is now targeting the January high at 81.63, or some 0.90 cents above current levels. This upward movement on the USD is reflection that the European and Japanese currencies are still way overvalued and the USD undervalued. This is likely to be a continuing trend for the immediate term. Some expect parity for the Euro to the USD. We’ll see how far the USD recovers value over this period.

As the USD rises global stock markets and commodity markets will likely fall as this inverse relationship has been intact for some time. Yesterday there was liquidation in a lot of these markets. The effect of this was felt hard as Gold was down almost $100 at the low, Copper was down 19 cents, crude was down almost $6/bbl and the S&P was down 15 pts. These are very big moves for the commodities, Gold being down 6% in a day!

The 10% whipsaw moves over short periods appear to no to be over. With the USD unlikely at this juncture to change trend, it looks very unlikely that the market will able to take out old highs, so, for now, we remain in a bear market.

Hot Rolled NYMEX

The market has been quieter this week as the prices had risen to levels that have not garnered much buying interest. $720 traded for Q1 end week last week, but that may have been the interim peak. We have since seen lower offers and trades Q2 traded either side of $710, bringing to the forefront the idea that the 1st Quarter will be a higher level than the 2nd Quarter when all is settled. Today Q3 also traded lower, trading either side of $705. This suggests that the price rally we are in is being viewed as short-lived by the futures market. The forward market and the fundaments are both asserting that for now.

Demand will be the key this time around as supply, or rather supply costs, are not under the same inflationary pressure as last year’s rally. Iron Ore, for instance has been under pressure again in the low 130’s nearby, and the mid to low 120’s for the back end of 2012. This is a far cry from the level seen this time last year. If China’s appetite does not improve that market in the near term, all ferrous prices will be under pricing pressure into 2012 as steel units will find their way to the highest priced market, i.e. the U.S.

LME Billet

Billet rallied smartly last week as the concern over scrap price levels drove the Billet contract up about $25/GT from $520 area up to the $545/$550 area. Cash and 3’s are pretty even at $548 and $555 respectively on yesterday settles. It looks still pretty illiquid for now and simply a reaction to the scrap price increase. If January scrap here is up another $20-$40 as some suspect, we should then see another rise in the Billet market as well. However that increase may be more subdued as scrap supply from Europe continues to be more competitive than here.

Thu, 15 Dec 2011 05:00:00 -0500

Steel Market Update has an offer to those who are interested in receiving our newsletter on a regular basis. We are offering, for a limited time, a 14 month membership at the price of a one-year membership. On an $895 single membership the cost savings is $149 – on corporate or multi-person memberships – the savings is even higher.

Steel Market Update (SMU) has been publishing our newsletter for almost seven years going back to the publisher’s days at the domestic conversion mill: Winner Steel (now Sharon Coatings). Since August 2008 Steel Market Update has been made available to the steel community as a publication dedicated to the flat rolled steel industry in North America.

SMU concentrates our efforts in assisting our readers to better understand the flat rolled steel industry in whole, trends which impact both buyers and sellers of steel and we index pricing on hot rolled, cold rolled, galvanized and Galvalume steels on a weekly basis. We also index scrap prices on #1 HMS, shredded scrap and #1 busheling.

Besides our indexes we have a number of proprietary products including our SMU Steel Buyers Sentiment Index and our SMU Price Momentum Indicator.

Our steel market survey is second to none as we poll close to 800 active buyers and sellers of flat rolled steel. Our survey is produced twice per month and we have just begun our mid-December survey earlier today.

Steel Market Update believes in educating the active steel community on a variety of topics. We conduct workshops such as Steel 101: Understanding the Making & Rolling of Steel, Price Volatility – Hedging Price Risk and our annual fall “Steel Summit” conference which we have been holding in conjunction with METALCON. As another benefit to membership all SMU members receive discounts on our programs and workshops.

Unlike any other publication we know, Steel Market Update believes our job is to provide value to our members. We stand behind our product and will refund 100% to any member who does not feel they are receiving value out of our newsletter and website.

If you are interested and want to learn more about becoming a member – please contact Sophia Fain in our office – 800-432-3475 (706-216-5440) or by email at: info@steelmarketupdate.com

Our special membership offer expires on January 3, 2012.

Fri, 09 Dec 2011 05:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

Effective Sunday, December 11, 2011, for trades dated Monday, December 12, 2011 the NYMEX will list a U.S. Midwest Domestic Hot Rolled Coil Steel Average Price Option contract for trading on the NYMEX trading floor and for clearing through CME ClearPort. An option on a future is the right, but not the obligation, to buy or sell a specified number of underlying futures contracts at an agreed upon price on or before a given future date. HRC options will provide yet another tool to manage your HRC price risk. The addition of an option contract on HRC futures is further validation that steel futures are gaining traction and are here to stay.

Hot Rolled Futures Trading Light this Past Week

HRC futures prices on the CME continued to head higher this week increasing $12 per ton for the first half of 2012. Volume was light this week as participants tried to weigh the impact of more mill price hikes this week and a firming scrap market. In the past 5 trading days only 700 tons (35 lots) of HRC changed hands on the CME.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through June 2012:

LME Billet Prices Increase

The three month LME steel billet price settled yesterday at $570 and increase of $30 per ton from last Wednesday’s settlement of $540 and has now reclaimed the $550 to $600 trading range where it has remained throughout most of 2011.

The LME billet Official Cash Settlement price settled yesterday at $553 up $23.50 from last Wednesday’s settlement.

December Scrap Prices Rise

The LME three month billet futures price increased $30 per ton this week which correlates very closely to the increase in ferrous scrap prices in many markets. It has been widely reported that ferrous scrap prices have increased $20 to $30 per ton depending on the grade and geographic location. We have also heard from the trade that many steel mills are trying to minimize their year-end scrap inventories for accounting purposes but will need to rebuild scrap inventories in January to keep up with stronger order entries. Many scrap dealers have told us that they are expecting strong price increases for scrap in January.

Next Hedging Price Risk Workshop

Steel Market Update and Andre Marshall of Crunch Risk, LLC will conduct our next Hedging Price Risk workshop on January 25th in Houston, Texas. You can find out more details about the workshop and register for the class on our website: www.SteelMarketUpdate.com/Events

Fri, 02 Dec 2011 05:00:00 -0500

Written by: André Marshall CEO Crunch Risk, LLC www.CrunchRisk.com

Financial Markets

Well, nothing like the collective force of the world’s central banks to save the market from itself. It’s as if the European debt crisis never existed. The announcement came out that the Fed and other Central banks would do whatever necessary to help the governments with their debts, and, boom, off to the races! The markets had barely even reacted to the announcement when the Chinese government announced it was easing lending guidelines, a measure viewed as easing, but when this announcement came out the markets were spring-loaded upward.

The S+P went up 500 Pts on Tuesday before the day was over, Copper gained 19 cts!, Crude was up $1.25 and Gold was up $33. That kind of move can be explained by short covering, but today’s price action which was essentially sideways suggests that the market perception is this kind of announcement has brought some comfort that wasn’t there before. 10% up and down volatility, which is what we’ve enjoyed since July is likely not over. If it were that simple they would have made an announcement a long time ago – but it appears this measure will bring some calm to the markets at least for a bit.

I expect the markets to move higher from here. The recent highs in October are certainly in the markets sites, and the years highs from May are possibly a target for the market. We are also in year end, which makes this rally scenario even more plausible. All that said, if the market fails to take out the May high we will still be in a bear market.

HR NYMEX Steel

The market started off the week trading just under $700 to finish off today trading either side of $720. The market has traded approximately 1144 lots or 22,880 ST. The spot prices continue to encourage forward buyers to come to market albeit slowly and in fairly small quantities so far. Perspective on the ability of the market to pull of its seasonal price rally continues to diverge and price differentials in the market for both steel and scrap also lend fuel to that debate. Iron Ore futures have rallied a bit in the last day or so coming up $5-10 which has stalled that market’s very recent slide.

Scrap

Although not very many concrete levels to site it appears that scrap will increase $20/T at least in the prime grades. Turkish cargos of the east coast increased those export levels by $5/T, but there the market is really competing against European and other scrap which is at competitive levels. It’s the traditional Dec. month where the market say take it now at my price or wait. With some mills having booked steel orders out through January there is definitely some appetite there for some. However, for other mills December still has to be addressed and the needs there are much less certain. The south apparently is softer than the mid-west, could very well be due to the overhang of Pig Iron in the Gulf. Scrap not driving price right now, but it’s not hurting either.

LME Billet

Market is soft as Turkey is not in the market and Europe is a huge question mark. The inventories are rising and no doubt it’s unwanted length being returned to the market. The cash price is approx $510 and the 3’s is $520. This is down about $10 from last week. Very little activity except position management as this market continues to heal.

Fri, 02 Dec 2011 05:00:00 -0500

Steel Market Update Steel Buyers Sentiment Index moved higher by +2 points this week and is now at +21. At the time of the first mill price increase announcement which was made during the first week of November, our SMU Steel Buyers Sentiment Index was +7. Since then, the Index has improved by +14 points and is now clearly within the optimistic range.

Steel buyers and sellers appear to be looking beyond the typical 4th Quarter seasonal slow-down and are now focused on 1st Quarter business. The belief within the North American steel industry is that things are getting better (or at least no worse) and there is an optimistic feeling within the community.

A number of buyers told SMU during the survey process they had locked in pricing at the bottom of the market and felt quite comfortable about their inventory positions going into 1st and 2nd Quarters 2012.

A manufacturer told us, “I have locked in my entire winter (very recently at very attractive pricing) as I do not believe the fundamentals will support a price reduction prior to April.”

While a service center explained their position, “prices looked good so we brought for all of 1st qtr and part of 2nd qtr hope we are right as steel will be in before year.”

A grain bin manufacturer who has been having record sales told us, “Hard to say this early in the grain bin season, but indications are 2012 should be a copy of 2011.”

SMU Future Buyers Sentiment Index also moved higher by an impressive +11 points and was measured at +46 based on our survey results which began during the middle of this week. The +46 is just 9 points from the highest number recorded since we began measuring Future Sentiment in November 2008.

About our SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to over 775 North American companies to participate in our survey. Our normal response rate is approximately 150-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.

Mon, 28 Nov 2011 05:00:00 -0500

Written by: Andre Marshall, CEO Crunch Risk, LLC

Financial Markets

The European Credit Crisis is like a like a train wreck, the train applied it brakes a long time ago but it takes the train 3 miles to stop once the brakes are applied, and so we get to see this train wreck in slow motion. We know what the carnage will look like because the U.S. went through its train wreck in 2008/2009. Europe should have done so at the time as well, but the European governments chose to paper over the glaring holes in their balance sheets instead focusing on some Stress Test light applications to their banking sector. Now that the governments are starting to fall - Greece, Italy … The entire financial system there is not equipped to handle the magnitude of this debt repayment from this patchwork of unimpressive financial countries under this umbrella of a currency called the Euro.

The Euro is almost certainly headed to parity with USD if it can even survive that long. The politics are slow moving, the debt is impressive and time has now run out. As a result our financial markets have shed 7.2% in less than 2 weeks, and may not yet have even found a temporary bottom, as investors , fearing the worst, are in the process again of “risk off”. Everyone will be watching this week’s debt auctions by Italy, Spain and France. Last week’s were poorly received. Focus will be on whether these auction will fare worse or the same.

NYMEX HR Steel

Options will start on Hot Rolled on December 11th. The next iteration of a futures market. Usually options are started when a market has more liquidity, but in this case options may be more useful to participants than futures in the U.S steel industry and may in fact help liquidity of the underlying contracts. Options will provide Average Monthly settled Calls (the right to Buy) and Puts (the right to Sell). The CME also continues to work diligently to start a scrap contract or contracts, No 1 Busheling, HMS No 1, or Shred. All this may still seem foreign to the U.S. steel community, but considering that the largest futures contract in the world is now a steel contract (Chinese SHFE Rebar – some $4bln dollars/day), it’s only a matter of time before steel futures will be commonplace instruments for that average buyer or seller of steel in North America. For some it already is.

With Thanksgiving, the market has been a little dis-jointed. The spot increases have definitely given pause to the sellers who have backed off on levels. The forward curve now is pretty flat, but except for some Q1 business at $690/5 area HR has not traded at the new higher levels. The forward curve is offered at $710 from January on and would require a price close to that to get any volume done. Of any of the months, the weakest expectation is for Q2 as many believe the price increase will cause a price rise to some degree into the beginning of the 1 Quarter, but beyond that the opinions diverge completely. Many believe volume will not be sufficient to allow prices to remain and so there is some interest to sell the 2nd Quarter, more so than the 1st Quarter. The 2nd half is either good value at $710, if you think the market will sustain an upward trajectory or very expensive if you think we’re headed lower again. It is this authors view that if we do fail to maintain an upward price direction, that the new lows thereafter will be lower than the last lows. The world looks like it’s on the brink of collapse, but for now prices will rise, because perception recognizes inventories are low, demand is steady, scrap is still a desirable export commodity, and the emerging markets, which import most of our manufactured exports, are still grow albeit more slowly.

LME Billet

The market continues to trade either side of $525/540. Cash and 3’s are trading flat. This market is quiet, and will continue to be so until this long-holder situation is resolved. Then and only then will participants come back into the billet market and that will be only once Turkey’s demand improves. With Turkey so dependent on Europe, it could be a while before we see any volatility in Billet again. Until then it will continue to lose open interest as position holders manage existing positions.

Fri, 18 Nov 2011 05:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

For anyone who still thinks that Hot Rolled Coil futures will never work – it’s time to think again. A new CME U.S Midwest Domestic HRC Futures volume record was set for October, with total volume of 5,021 contracts traded, equating to over 100,000 tons, topping the previous monthly high of 4,645 contracts traded in July of 2009. In addition, the CME is rolling out an options contract on HRC starting on December 12th. An option on a future is the right, but not the obligation, to buy or sell a specified number of underlying futures contracts at an agreed upon price on or before a given future date. HRC options will provide yet another tool to manage your HRC price risk.

HRC futures prices on the CME continued to head higher this week increasing $13 per ton for the first half of 2012. Volume has been strong. In the past 5 trading days 39,120 tons (1,956 lots) of HRC changed hands on the CME. Buyers seem to be snapping up whatever the sellers are offering. The HRC futures market continues to show signs of bullishness following the recent spate of mill price increase announcements.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through June 2012:

LME Billet Prices Unchanged amidst Turmoil

The three month LME steel billet price settled yesterday at $535 unchanged from last Friday’s settlement and still below the $550 to $600 trading range where it has remained throughout most of 2012.

The LME billet Official Cash Settlement price settled yesterday at $525 also unchanged from last Friday.

The recent bankruptcy filing by broker MF Global caused waves in the LME billet market this past week. The LME suspended 274 steel billet warrants held by MF Global last Friday since bankrupt MF Global was unable to comply with LME lending rules. Under LME rules, a party holding over 50 percent of the total warrants must be prepared to lend metal to other market participants if required to do so by the LME.

Traders said that Stemcor – a UK based steel trader – was the dominant longholder – and is said to be holding between 50 and 80 percent of all of the outstanding LME billet warrants.

LME billet supplies have been tight all year – often resulting in inexplicable spikes in LME billet prices which we have written about in this column. Perhaps now with the LME stepping in to insure an orderly market we may be approaching the end of this perpetual squeeze.

December Scrap Outlook Mixed

So far the outlook for the December scrap market is mixed. Shredded scrap today FAS U.S. East Coast is approximately $420 which represents fair value relative to the prevailing LME billet prices. The current cargo freight rates from U.S. East Coast to Turkey are about $30 per ton. Scrap to Billet Conversion costs in Turkey is about $80 per ton. So, $420 shred plus $30 freight = $450 per ton CFR Turkey. $450 + $80 per ton for conversion equal $530 which is right in line with the LME billet settlement prices yesterday. We will keep an eye on the LME billet futures prices over the next two weeks to see if they might give us clues to the December scrap market.

Thu, 17 Nov 2011 05:00:00 -0500

+12 Point Move Most Since November to December 2010

Those individuals who buy and sell flat rolled steel in North America have become more optimistic about their company’s ability to be successful in the current steel environment. Our Steel Market Update Steel Buyers Sentiment Index rose +12 points since the beginning of November to +19. The twelve point move higher is the most optimistic move in our index since late last year when our index jumped +19 points between mid-November and early December 2010.

John Packard, Publisher of Steel Market Update and founder of the SMU Steel Buyers Sentiment Index noted, “Those actively involved in the steel industry in North America appear to be reacting to a firm bottom being put to the flat rolled steel markets and an expectation prices will rise at a moderate pace from here. I would peg the current market environment as being mildly optimistic as those within the industry continue to worry about European contagion, supply and demand levels as well as pressure on margins.”

The most optimistic measurement achieved since the November 2008 inception of the SMU Steel Buyers Sentiment Index was measured at +40 the first week of April 2011 while the most pessimistic reading recorded was a -85 in early March 2009.

Mon, 14 Nov 2011 05:00:00 -0500

To Our CME Group Trading Community,

On Friday afternoon, CME Group took two very important steps to further protect CME Group customers from the failure of MF Global:

First, CME Group has offered a $250 million guarantee to assist the bankruptcy trustee in releasing additional customer assets - including currently frozen cash balances - that continue to be held securely at CME Clearing, other clearing houses and MF Global custodians. Though CME Clearing does not guarantee FCM-held assets, this action is intended to give the trustee greater latitude to make an interim distribution of cash to customers now, given the considerable work he still has yet to do to complete the MF Global liquidation and make distributions to creditors. The guarantee would provide the trustee access to additional funds if a partial distribution of the remaining cash was found to have given some customers greater amounts than they would have been entitled to in the full claims process to follow.
Second, the CME Trust will make $50 million in assets available to offset losses by CME Group customers due to MF Global's improper handling of funds held at the firm level. As you may know, our Trust was established in 1969 to provide assistance in the case of a clearing member failure.

More details on our announcement are available in the press release.

While we understand this is complex, we believe this extraordinary measure is necessary to ensure that all customers are treated fairly during the unique and challenging circumstances surrounding the failure of MF Global. We continue to work with the Trustee to return all of the remaining segregated funds to customers as soon as possible as allowed by law.

Our main concerns continue to be the protection of our customers and the integrity of all futures markets. The MF Global situation calls for extreme measures, and we will continue to advocate on behalf of customers - wherever they clear or trade.

Source: CME Group

Fri, 11 Nov 2011 05:00:00 -0500

Written by: Andre Marshall CEO Crunch Risk, LLC www.CrunchRisk.com

The meltdown of MF Global was in the headlines this week. It is a clear example of the importance of the security of an exchange to secure pricing in the supply channel. All contracts that were cleared through MF Global through the Clearing will be made whole by the NYMEX who will find other Clearing members to pick up those obligations. This yet another surprise meltdown due to unknown proprietary positions will almost certainly mean that the regulators will manage to force the financial community to clear everything through an exchange. This was already in process due to Dodd Frank and Volker rules, but it is now going to be concrete in its application. Any headway the financial community would have made in softening these regulations will have all but disappeared due to this event.

The financial markets continue to struggle to find a direction. Volatility remains. It appears as once again we are in “Risk Off” mode for the commodity sector. Basis recent forecasts, Europe is all but already headed into a recession, China growth is materially reduced basis prior estimates and other emerging countries growth, although healthy, is less than it was.

Hot Rolled NYMEX

The market has traded steady this past week. Having traded approximately 23,400 lots in the past week. Q1 has traded end last week either side of $690, while being bid as much at 685 this week. 1st Half has traded either side of $690 end last week and $695 earlier this week. Calendar ‘12 has been as high bid as $690, and earlier this week Q1 traded either side of $690 and Q2 traded either side of $700. The market is now at a crossroads as the spot market appears to have found its low and has bounced some $50-60. It remains to be seen whether the spot price can get traction here with all of the gloomy global news.

Other markets

A big divergence exists on what scrap will do in December after having come down $50 in Prime and $30ish in obsolete for November. There is a large stockpile of Pig Iron clogging the Gulf Shores, and reports of mid $400’s trades as well. This helps explains the bigger drop in prime than obsolete (besides supply side factors). This could really put a lid of scrap prices going into winter if this Pig supply is a component of our market going forward and with China’s growth in question - which could very well be the case.

Iron Ore is steady but the SHFE coil market struggles to get legs. There is some concern again coming out of China that the Chinese steel market and thus the Iron Ore market may struggle going forward unless there is some sort of monetary easing out of their government. I might add the same perspective holds for some for our HR market here in North America.

LME Billet

The 3 months has traded as low at $525, and is currently trading either side of $535. There is little to report in this market which is pretty flat cash to the 3 months. The market awaits news for fresh Turkey demand, but with Europe looking so bleak going forward it’s hard to imagine the Turks will be that aggressive for billet which would necessitate metal from the exchange. The long holders of this market positions continue to bleed as the cost mount to hold this metal complex in the current environment.

SMU Note

Our next Hedging Price Risk workshop will be held in Houston, Texas on January 25, 2012. Andre Marshall – the author of the above article – will be our main instructor and we will once again be joined by representatives of the CME Group. There is more information about our program and cost on our website: www.steelmarketupdate.com/events or you are welcome to contact our offices at: 800-432-3475.

Fri, 04 Nov 2011 04:00:00 -0500

Written by: Andre Marshall, CEO of Crunch Risk, LLC

As is always the case when markets are depressed, it creates a divergence of opinion like at no other time. People either smell a turn or a rotten egg. The rumor of prices traded is as wide as one has ever heard it ( I’ll leave those levels to others to report what those are). Nonetheless the divergence of opinion causes great disparity in pricing discovery and the futures markets across the board have been very volatile (SP, Crude, USD, Coper, etc). Traders have literally never seen such a long period of incredibly high volatility in the markets. Hot Rolled (HR) and Iron Ore have experienced some gyrations as a result this last week albeit with a generally higher trend. Risk of volatility is sure to continue.

NYMEX HR:

The futures market has picked up in price and in activity this week. Despite spot prices that were declining daily in the last week, the futures prices all of a sudden caught a bid at $650 for the Calendar Year ’12 period. From there, a number of buyers jumped in front of those levels. Offers immediately backed off from their $665/670 area and raised to $695/705 area. Since then the buyers have trickled in at ever higher levels on the bid, culminating in a Cal ’12 trade at $695 earlier in the week, and 1st Half trades today $690-695 area. Q1 also traded today either side of $680.

Market suffers still from sporadic liquidity and the rule is still to take advantage of liquidity when it’s there. I have attended recently the Steel Market Update conference at METALCON, CRU Conference in Chicago, and my latest Hedge workshop at the NYMEX in New York Wednesday, and I can say that it feels like the whole world is signing up for accounts in order to trade financially. This will be a very good thing for liquidity going forward. About 1260 lots or 25,200 ST has traded since last week. Market stable for now at these levels traded above.

Scrap/Iron Ore:

Some have come in very aggressive down over $50/T, but other transactions suggest that the market is headed for $30-35 down, and in some instances it looks like mills may already being coming up short in certain regions based on their aggressive price stance. It will be a while yet before this all plays out, probably next week before we know for sure where it settles. The Severstal announcement of a price increase probably will support dealers who want to hold out for more, sensing a turn. Export scrap markets are literally dead.

Iron Ore forwards dipped last week into the mid teens. This week they popped back up into the mid 120’s only to back off their highs. Spot prices the world over also have retraced up similar amounts only to then sag again. Those in the know think that $100/T will be a magnet force as the Chinese demand just isn’t there in earnest.

LME Billet:

LME billet has been dead quiet with activity now more focused on Cash then on 3 months. This could be a function of the aftermath of the tightness in this market as the shorts have all been pushed out and now the market is left to the actions of the longs who are either taking delivery from the long LME warehouse queue, or trading cash to get out. Looks like the latter for now. LME Billet stuck at $530/MT for cash and 3’s months with very little 3’s trading. Could be a bad omen for this contract.

SMU Note:

Our next SMU/Crunch Risk Hedging Price Risk workshop will be held in Houston, Texas on Wednesday, January 25, 2012. More information is available on our website: www.SteelMarketUpdate.com/Events or you can click on the following link. Steel Market Update is accepting registrations which can be done online or through our office at: 800-432-3475 (706-216-5440).

Fri, 04 Nov 2011 04:00:00 -0500

Steel Market Update (SMU) Steel Buyers Sentiment Index dropped to +7 based on our most recent steel market survey results. The latest reading is down 9 points from our results measured during the middle of October. The +7 reading is also the lowest we have seen during the current calendar year.

Respondents to our survey pointed to a squeeze in profit margins as being the main culprit for the decline in our index. The second market factor contributing to the decline in SMU Sentiment is related to the seasonal turn lower which is normal as business approaches the Thanksgiving through New Year Holiday period.

Here are some of the comments left behind as buyers and sellers of steel responded to our questions regarding their company’s ability to be successful in the current market conditions.

“Year over year order volume is up slightly, but the fears of inconsistency and large swings within the pricing structures is taking its toll on general business conditions.” Steel Service Center

“Margins are being sqeezed to almost nothing.” Steel Service Center

“Volumes are good, pricing is awful.” North American Steel Mill

“Conditions in the HVAC world are not good. We just finished October which normally is the best month of the year, instead it was the worst October in the history of the company!” HVAC Wholesaler

“Seasonally we are entering the slowest part of the year with steel pricing way too high due to input costs. What will be the next false start to allow the steel mills to ramp up pricing? Very precarious right now and looking to lock in tons but worried the input costs may dive further.” Manufacturer

SMU Steel Buyers Future Sentiment Index Moves Higher

Those involved in the steel industry feel much better about their company’s changes of being successful as we move into the New Year. Our SMU Steel Buyers Future Sentiment Index improved to +37 which is an increase of 8 points compared to our mid-October survey results and +12 points compared to the results from the first week of October.

A +37 reading keeps SMU Future Sentiment squarely in the optimistic zone where it has resided since November 2010.

About our SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to over 775 North American companies to participate in our survey. Our normal response rate is approximately 150-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.

Fri, 28 Oct 2011 04:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

Are Copper Futures Pointing to a Cyclical Bottom to the Steel Futures Market?

Hot Rolled Coil (HRC) futures prices continued to head lower again this week dropping approximately $20 per ton. However in other base metals, futures prices soared this week. Most notably, copper which has increased over 20% during the past four trading days. For those of you that remember 2008/2009, you might recall that copper futures are often a leading indicator relative to steel – because copper futures are a deeper and more liquid market than steel futures. Following the Lehman crisis in late 2008, copper recorded its recession low in December 2008. However, steel didn’t post its recession low until March 2009 -- a full three months after copper. Could the meteoric rise in copper this week be a signal that steel may be nearing a cyclical bottom in the next month or two?

Volume on the CME U.S. Midwest Hot Rolled futures contract was down about 33% this week versus last with 13,800 tons (690 lots) changing hands. The average price for the 2012 HRC transactions this week was $665 – but we saw some small trades today as low as $615 for March and $620 for April 2012.

The majority of the HRC trades that were recorded this week on CME included: Q1-2012 at $650, Q2-2012 at $660; Q3-2012 at $670 and Q4-2012 at $680. Trade reports indicate that one large buyer locked in 1,000 tons per month at these price levels for next year.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through June 2012:

LME Billet Prices Up $5 to $15 per ton

The three month LME steel billet price settled yesterday at $545 up $5 from last week but is still below the $550 to $600 trading range where it has remained throughout most of 2012.

The LME billet Official Cash Settlement price settled yesterday at $545 up $15 from last week.

November Scrap Prices Predicted to Drop

Although LME Billet prices seemed to have seemed to have stopped declining and started to move up slightly this week, we cannot say the same about ferrous scrap prices. Trader rumors suggest that ferrous scrap prices could fall $20 to $40 per ton in November as HRC demand remains weak. But scrap dealers are notorious for not selling in November and December for year-end bookkeeping purposes. So the larger the drop in ferrous scrap prices in November, the greater the resistance to sell. Pushing the ferrous market down at year end is like winding the tension in a spring – the greater the force down, the higher the spring will expand when released.

Note: Steel Market Update (SMU) will conduct our next Hedging Price Risk workshop at the NYMEX in New York City on November 2, 2011. Information is available on our website: www.steelmarketupdate.com or you can contact our office for specific details and last minute reservations.

Our next Hedging workshop will be held in Houston on January 25, 2012. The program will be similar to the New York workshop as we work with Andre Marshall, CEO of Crunch Risk, LLC and the CME Group. Look for details on our website within the next few days and registration is open by contacting our office at 800-432-3475 (706-216-5440).

Fri, 21 Oct 2011 04:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

HRC futures prices continued to head lower this week dropping over $20 per ton.

Volume on the CME U.S. Midwest Hot Rolled futures contract has been steady so far this week with 20,560 tons (1,028 lots) changing hands. The majority of this week’s transactions were for contractual months in 2012.

Some of the Hot Rolled Coil (HRC) trades that were recorded this week on CME included: November 2011 at $640; March 2012 at $650, Q2-2012 at $685; and Q3-2012 at $700. Despite the general softness to the market some buyers are locking in forward prices for next year at these levels.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through June 2012:

LME Billet Prices Head Lower

The three month LME steel billet price settled yesterday at $540 breaking through the bottom of its $550 to $600 trading range where it has been since January. Considering that just last week the three month LME billet settled at $600, the move down represents a 10% drop in just over a week.
The LME billet Official Cash Settlement price which peaked on August 26 at $700, yesterday settled at $530 down $10 from last week. Since billet prices are often a reliable indicator of the future direction of scrap prices, this move lower bears watching to see if scrap prices start to move lower in sympathy.

November Scrap Market

We’ve heard reports of export scrap cargoes being booked at prices that are down $20 per ton versus October price levels from U.S. East Coast port – which would be consistent with the aforementioned drop in LME billet prices this week. As we move towards November and December, keep in mind that scrap sellers often sell less scrap for year-end bookkeeping purposes and stockpile in anticipation of the seasonal scrap price increases that usually accompany December and January. Could be heading for an end of year standoff between scrap buyers and sellers come November?

Next Hedging Price Risk Workshop – November 2, 2011 – New York City

Our next Hedging Price Risk workshop will be held at the NYMEX building in New York City on November 2, 2011. Our instructor is Andre Marshall, CEO of Crunch Risk, LLC and one of the most active brokers in the Hot Rolled Futures markets. Assisting Andre will be the CME Group and not showing on our program is the inclusion of the CRU Group which will do a short presentation about how their indices are collected and work in conjunction CME/NYMEX.

Registration is now open and more details can be found at: www.SteelMarketUpdate.com/Events or you are welcome to contact our office at 800-432-3475 (706-216-5440). You can also reach us by contacting: Sophia@SteelMarketUpdate.com

Fri, 21 Oct 2011 04:00:00 -0500

Steel Market Update (SMU) Steel Buyers Sentiment Index was measured at +16 this week. This is an improvement of +4 points compared to the +12 measured during the first week of October. The SMU Index has been range bound for a number of weeks as both buyers and sellers remain cautiously optimistic regarding their company’s ability to be successful in the current business environment.

Steel Market Update found evidence of the muted optimistic trend in the steel community as we reviewed the comments left behind during the survey process conducted earlier this week.

A manufacturing company left us the following comment, “Business remains steady, but no more than that.”

A service center told us, “Slightly improved over September which was slightly better than August. Continued slow improvement. Improvement is a relative term.”

The lack of enthusiasm was also found in the Steel Dynamics earnings conference call with analysts held earlier this week. SDI's CEO reported the steel market as having nothing on the horizon to move flat rolled prices forward. At the same time their lead times are short – only 2-3 weeks on most products.

It is the uncertainty which seems to have permeated the steel market which is preventing our SMU Steel Buyers Sentiment Index from rising above the “mildly optimistic” levels we have seen for the past three months.

The highest reading we recorded was a +40 which was recorded the first week of April 2011 and the lowest reading was recorded the first week of March 2009 at -85.

Future Sentiment Rises by 4 Points

Future sentiment has also come down off its highs of the year achieved during the first two quarters of 2011. Future Sentiment continues to be in the optimistic range at +29. This represents an improvement of 4 points over our reading taken at the beginning of the month and is 36 points higher than the measurement made during the middle of October 2010.

About our SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to over 775 North American companies to participate in our survey. Our normal response rate is approximately 150-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.

Fri, 14 Oct 2011 04:00:00 -0500

Written by: Andre Marshall, CEO Crunch Risk, LLC – www.CrunchRisk.com

Financial Markets

The last time I reported we were in the midst of an unprecedented meltdown in all financial markets. From that day, we literally found a bottom, and have rallied strongly since.

From the 4th of October until today we have essentially been in a retracement rally that is now probably close to exhausted. SP has risen from a low of 1075 to just either side of 1200, or an 11% move, Crude has risen from a $75/bbl low to approx. $85/bbl, a 13+% move, and Copper has risen from a $3.00 low to $3.40 or a 13+% move.

So we’ve had a nice retracement and it wasn’t all short-covering. In fact, in a number of markets Open Interest (the number of new contracts) has actually increased in the rally. It almost feels like “risk on” again. But be careful; remember what I said about looking at market rallies in a new light. It still applies.

Until the market can actually take out old highs, we’re most likely in a bear market trend, and at current levels we’re close to that bear market trend resistance. If correct, repetition principal suggests that the next downward move will take the S+P down 275 points from 1250 (optimum resistance target), or 975 area. You can probably do the math on how the other markets might react as well if they mirrored such a move.

NYMEX Hot Rolled Coil (HRC)

The Forwards have resumed their decline. This time however the spot market is leading the way. Regardless of how low the lowest deals have been transacted so far on spot, and there are some pretty low numbers rumored, one thing is clear and that is for those willing to transact quantity the spot price continues to drop weekly.

This has brought the forwards under pressure although to a lesser degree than the spot market. We have seen the nearby months drop another $10/ST (short ton) to the $665/ST area while Q1 ’12 has now traded below $700 and Q2 just above $700 with 2H ’12 now trading either side of $715.

Calendar ’12 can now be picked up around $710/ST for decent sized deals. These periods are all down approximately $15/ST from last week.

Volume traded has been relatively modest with the most today where 7500 Short Tons traded through Clearport (CME Group), and another 2120 ST traded on the screen.

Scrap is Trading Lower

Scrap has traded level to down $15 in most parts depending on location for prime. Secondary has traded down $10-40/GT depending on location and quality. Export markets have dropped the most in the case of secondary, with both East and West coasts equally effected as Turkey and China have dialed back their interest – could very well be recent $USD strength retracement.

Tempering this with a little bullish data, yards are reporting lower flow of late for Shred, and apparently some mills have not been able to get what they need at their numbers. Price may not yet still be set. Most believe October will not drop much if at all.

LME Billet

LME Billet continues its grapevine demise. The long-holder of this market is determined to kill this contract and get rich in the process. I’m still betting it blows up in the end, but until then this market is literally untradeable with no cash sellers to speak of.

This camel’s back breaks if scrap starts to drop significantly and that is still a possible scenario although most believe it is not (exactly why I think it is more plausible then some would think). The 3 months continues to be under pressure. Today it was trading just north of $540/MT. This down about $10/MT from last week.

SMU Note: Andre Marshall is the instructor for our Hedging Price Risk workshop. Crunch Risk, LLC, Steel Market Update, CME Group and CRU Group will be working together at our next workshop which will be November 2, 2011 at the NYMEX building in New York City. Go to www.SteelMarketUpdate.com/Events for more details and for registration.

Fri, 07 Oct 2011 04:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

Following the big selloff last week, this week has been noticeably quieter. Prices have stabilized and trading volumes have eased. The market has paused this week awaiting signs of which direction is next.

Volume over the last five trading days on the CME U.S. Midwest Hot Rolled futures contract was 12,540 tons (627 lots) down 74% from last week’s massive trading volume. The sellers that were racing for the exits last week seem to be more content this week to wait and see what happens next.

This week the September trading month rolled off and October became the active spot month on CME.

Open Interest – or the number of open contracts -- on CME contract fell 16.9% as the September contracts were settled.

Open interest increases when a buyer and seller create a new contract. For example this occurs when a buyer initiates a long position and a seller initiates a short position. Open interest decreases when a buyer and seller liquidate existing contracts. This can occur when a buyer is selling an existing long position and a seller is covering an existing short position.

Analyzing both volume and open interest can provide clues to the flow of money in and out of a market.

Rising volume and rising open interest – which is what we saw last week on the CME -- is usually a confirmation that the direction of the current trend will continue – i.e. last week the price trend was unquestionably down.

Falling volume and falling open interest – which is what we are seeing this week -- is often a signal that an end to the current trend may be imminent. This could be an early indicator that the recent downtrend in pricing is coming to an end.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through June 2012:

LME Billet Prices Stable for Second Consecutive Week

The three month LME steel billet price settled yesterday at $555 near the bottom of its $550 to $600 trading range where it has been since January.

The LME billet Official Cash Settlement price which peaked on August 26 at $700, and then hit bottom on September 26 at $545.50; yesterday settled at $591 up $11 from last week.

October Scrap Market Sideways to Slightly Lower

We’ve heard reports of October scrap being booked at prices that are unchanged from September and also reports of down $5 per ton and down $10 per ton versus September. As we move towards November and December, keep in mind that scrap sellers often sell less scrap for year-end bookkeeping purposes and stockpile in anticipation of the seasonal scrap price increases that usually accompany December and January.

Fri, 07 Oct 2011 04:00:00 -0500

Thu, 06 Oct 2011 04:00:00 -0500

“We believe our SMU Steel Buyers Sentiment Index is not showing the same enthusiasm which existed earlier this year as those within the steel industry begin to worry about seasonal demand issue, world economic uncertainty as well as their ability to continue to meet business forecasts.”

Steel Market Update Steel Buyers Sentiment Index Improves to +12

Steel Market Update (SMU) Steel Buyers Sentiment Index rose to +12 during our most recent survey conducted October 3^rd – 5^th. The latest reading is +1 point higher than the +11 measured during the middle of September. Steel Market Update Steel Buyers Sentiment Index has been range-bound since early August when it was measured at +14 down from a mid-July reading of +25. Since early August Sentiment has bounced between a high of +14 to a low of +10.

John Packard, Publisher of Steel Market Update said today, “We believe our SMU Steel Buyers Sentiment Index is not expressing the same enthusiasm which existed earlier this year as those within the steel industry begin to worry about seasonal demand issues, world economic uncertainty as well as their ability to continue to meet business forecasts.”

Even though range bound, the SMU Steel Buyers Sentiment Index has now been in the “optimistic” portion of the range since early December 2010. The highest reading during calendar year 2012 was +40 measured in early April. The lowest reading so far this year was the +10 measured in the middle of August.

During the survey process our respondents recorded the following comments:

“We see nothing on the horizon that appears to be the catalyst for significant change.” (Service Center)

“Consumer confidence is real problem. Foot traffic thru the retail stores is really down.” (Manufacturer)

“Business levels have been very consistent since May. I expect no changes as long as the weather holds.” (Manufacturer)

“Tied to the construction markets as we do not see business conditions improving. Our early projections for 2012 is it will remain at 2011 levels.” (Service Center)

“Our international customers are speaking of another good year in grain storage similar to this year.” (Manufacturer)

Our SMU Steel Buyers Sentiment Index is produced through a proprietary survey taken twice per month. SMU invites approximately 765 companies to take our steel market survey where we measure Sentiment, Trends within the industry and Steel Prices. Any reading above zero indicates a steel community which is “optimistic” about their company’s chances of being successful in the current market environment.

We would describe the current results as being “mildly optimistic” and we are seeing signs of the steel community becoming nervous about domestic and world events which could impact the need for steel and products derived from steel in the months ahead. At this time, our SMU Future Steel Buyers Sentiment Index none-the-less remains squarely in the optimistic zone at +25 which is down 2 points from our mid-September Index reading and is at its lowest level so far this calendar year.

10 / 4 / 2011 - Hot Rolled Futures are becoming of more interest to many flat rolled steel companies.

Tue, 04 Oct 2011 04:00:00 -0500

As I travel around the country I try to visit with as many customers or potential customers as possible. During my travels to Chicago last week I managed to visit with a couple of service centers. While sitting in the office of the CEO of one of the service centers the subject of Hot Rolled Futures came up. The company had been to one of our Hedging Price Risk workshops earlier this year and they had just made their first Hedging transaction.

Being the curious type I probed for more details as to why they did the transaction and what benefits did they believe they would derive from taking a position.

The company told me they had just made a “special” deal on a large lot of steel at an excellent price. The company then had a decision to make – do they take these extra tons and push them into the spot market at discounted prices or do they hold onto the material until 1^st Quarter when selling prices may be higher?

The CEO of the company told me their analysis of the steel market led them to believe prices were weakening and would continue to do so through the end of the year. They feel the best option is to hold the material until 1^st Quarter but they wanted to cover a portion of their Risk. Even though the product was not prime hot rolled they knew the correlation was very good between their newly purchased inventory and prime base hot rolled which is the basis used in the hot rolled futures contracts.

Having been through our Hedging Price Risk program they now had developed a relationship with a broker and inquired as to the forward curve pricing as they wished to sell a number of thousands of tons of futures contracts to cover a portion of their Risk. They ended up selling contracts during the months of November, December and January in order to protect themselves against falling prices as they held onto their extra inventory position.

Joe Reinmann, CEO of Kataman Metals mentioned in his most recent article (SMU 9/29) on the Hot Rolled Futures markets that the volume of Hot Rolled Futures contracts has been soaring recently. “Volume over the last five trading days on the CME U.S. Midwest Hot Rolled Futures contract was 48,600 tons (2,430 lots) or 9,720 tons on average per day… Open interest – or the number of open contracts – on CME contract soared 10% this week indicating new money is flowing into HRC futures.”

The HRC Futures contracts sold by the service center mentioned above were not reflected in the numbers mentioned by Mr. Reinmann in his article so we are aware of another large tonnage deal which will ultimately be cleared by the CME. What Mr. Reinmann doesn’t mention is the HRC Futures market is actually much larger as only 60% of the trades are cleared through the CME. Not all of the Over the Counter (OTC) trades are cleared through Clearport (CME).

Steel Market Update and Andre Marshall, CEO of Crunch Risk along with the CME Group and a representative from CRU will be conducting a new Hedging Price Risk workshop in New York City on November 2, 2011. The program will include a tour of the NYMEX trading floor. For more details you can CLICK HERE or go to our website: www.steelmarketupdate.com and click on the Events tab in the toolbar. If you would like to register for the workshop in New York City please CLICK HERE.

Mon, 03 Oct 2011 04:00:00 -0500

As you can see by the September recap of prices which we have in an chart below, September steel prices essentially ended the month where it began the month. In the case of hot rolled the month began at $680 per ton – rose slightly during the middle of the month – before dropping back to $680 last week.

During the month of September Steel Market Update had a “Neutral” rating for steel prices. This means our readers should be wary of the market as we believe change in price momentum will occur. Trying to time the exact level of change and how quickly it will occur is not something we are able to accurately predict on a day by day basis.

However, SMU watches negotiations between end users, service centers and steel mills very closely for evidence of change. We have been seeing and hearing about more instances whereby steel mills are actively negotiating prices with those customers who have orders to give. We have been picking up this change during our survey process and through our conversations with buyers.

In the graphic below we ask steel buyers and sellers during our twice monthly survey if the domestic mills are willing to negotiate pricing at that point in time. The graph shown below which dates back to the middle of September a majority of responses indicating a trend for the domestic mills to negotiate pricing. Our next survey will be conducted beginning on Monday, October 3rd.

What we are seeing now is a market which is “rudderless” in many respects and a market which one steel analysts referred to as having a “hierarchy” of price discounts based on the size of a company (and its relationship with its suppliers) with larger companies receiving price discounts while smaller customer paid higher pricing.

SMU is starting to see signs of mills moving off the “firm” stance on pricing which they may have had two and three weeks ago in order to be competitive and to expand their geographical reach in order to improve their order books.

One end user provided SMU with an example late last week whereby a mill which had been quoting prices at a high level came off their pricing by as much as $90 per ton (on a delivered basis) in order to compete with the local steel mill suppliers. Two weeks ago the same mill did not feel the need to compete and was much more passive in their quoting than this past week. A sign of order books weakening?

A number of mills have put a “floor” on pricing – for example one mill has a $680 per ton floor on their hot rolled pricing. However, this same mill is using grade and extra discounts along with freight allowances to take their prices down in order to meet competition.

We have heard from a number of end users that they expect the “floor” price to erode by anywhere from $20 to $40 per ton over the next 30 days.

Based on what we are seeing both in the domestic and world markets (for example Brazil is beginning to offer steel into the U.S. market after an absence of a year or more on many products) we now believe the trend in prices is to move lower over the next 30 days. However, we do not expect steel prices to crash from here as scrap prices continue to show resistance and are said to be moving sideways to down only slightly for the month of October. The question then becomes what will happen to steel prices as we move out of late November/December lead times into early 2012?

We hope the team of analysts, consultants and economist we have assembled for our Construction & Steel Summit conference on October 10th will answer that and other economic questions of interest to the steel industry.

Fri, 30 Sep 2011 04:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

Hot Rolled Coil (HRC) Futures for 2012 Drop $64 per ton

Metal prices from Aluminum to Zinc have tumbled the past two weeks amidst a general commodity market selloff. Steel was not immune as settlement prices on the CME U.S. Midwest Hot Rolled futures plunged this week. The average HRC settlement price for Second Half 2011 on CME fell $45 per ton to $673 from $718 last week. 2012 HRC futures declined by an average of $64 per ton to $706 on average as per yesterday’s settlement prices versus last week. Second Quarter 2012 HRC futures traded at $720 yesterday. On Tuesday Third Quarter 2012 HRC traded at $737. HRC futures prices are now coming more in line with prices we have been hearing out of the physical markets.

Volume of HRC futures contracts this past week has been massive. Volume over the last five trading days on the CME U.S. Midwest Hot Rolled futures contract was 48,600 tons (2,430 lots) or 9,720 tons on average per day – which eclipses recent average daily volumes.

Open Interest – or the number of open contracts -- on CME contract soared 10% this week indicating that new money is flowing into HRC futures.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through June 2012:

LME Billet Prices Stabilize this Week after Recent Weakness

The three month LME steel billet price settled yesterday at $560 and stubbornly remains within the $550 to $600 trading range where it has been since January.

The LME billet Official Cash Settlement price started to stabilize this week. The LME Cash Settlement price which peaked on August 26 at $700, hit bottom on Monday this week at $545.50 and yesterday settled at $580.

Historically as we have highlighted in this column, LME billet prices and scrap prices are strongly correlated. We are starting to hear some rumblings that scrap prices may have also started to stabilize this week after recent reports of weakness.

October Scrap Market

Recently SMU has reported that scrap prices were heard being quoted down $10 for October. The past day or two recent chatter has indicated sideways pricing in some regions but most mills have not yet started to buy for October deliveries as of today – waiting first to see how their order books are shaping up. Prime scrap – prompt industrial scrap – is expected to be the most sought after grade for October. It’s important to remember that scrap prices did not increase in September as mills announced price increases of $60 to $80 per ton. So as HRC prices roll back, or increases are not fully collected, it cannot automatically be assumed that scrap prices will fall – since they never went up in the first place. Next week will bring more clarity to the October scrap market.

Note: Steel Market Update’s next Hedging Price Risk workshop will be held on November 2, 2012 at the NYMEX headquarters and trading floor in New York City. You can click here to learn more about our instructor: Andre Marshall, CEO of Crunch Risk and about our program on our website at: www.steelmarketupdate.com and click on the Events tab on the Home Page toolbar.

Fri, 23 Sep 2011 04:00:00 -0500

Written by: Andre Marshall, CEO Crunch Risk, LLC

The Financial Markets

Today was ugly, just no other way to convey the drop we saw today across the board in all markets. The S+P at current writing is down approximately 37 to 1128 (add a zero and add 50 for you DOW watchers), I suspect we will see a 50 to 60 down day today, Copper has been down as much as 30 cts!!!!! Down to $3.45/lb area, Gold has been down as much as $80 to $1721, and Crude has been down as much as $6 to $80.40.

Just about the worst one day drop we’ve seen since, well since you know when.

The Fed’s announcement clearly didn’t impress. Did people really think that Ben had any more bullets left? As I mentioned in previous reporting, the market is likely in a bear market and with rallies being sold at every turn it looks like I have a lot of company in that belief. Hope some of you lightened up on those subsequent rally opportunities we had.

As the market had taken its shot again at the upper end and failed, now it will need to test the lower end. So on S+P (ES futures) we will need to test 1100 zone and likely 1050 zone after that. Basis a bear market thesis it will not be unusual to see even much lower levels in the coming months. If correct about the bear market trend being intact then the market will want to attempt and test its lows. Does anyone remember 666 (the low on ES). Of course we don’t know if we will reach the low (happens in 60% of past market collapses) or how close we’ll get, but whatever the scenario it will require some nerves of steel (couldn’t help it). Best estimates put the S+P down close to 900 within the next few months as the USD rallies against even weaker alternatives (Europe and Japan) and companies struggle to put in ever increasing returns quarter on quarter. Prepare for the worst, hope for the best. Maybe look at future rallies in a new light.

NYMEX HR Steel

Futures have turned and although this author has been critical of the fictitious lofty levels on the forward curve of late, I do note that the futures market in steel turned up before the spot price did on this last correction up. With the steel futures price coming off from highs, Cal ’12 approx 750 v. 785 two weeks back, could it be this market might be telling us the spot is headed for another turn as well. The physical market certainly seems to be singing that chorus.

Lead times are still a paltry 1-4 weeks, and stories of sustained high costs in a world whose economy to continues to look grimmer by the day just aren’t able to bolster prices further. Large buyers are still able to get metal in the 650-670 zone creating what is for now a two tiered spot market.

Up until now, the market has been optimistic about scrap holding up for October. With demand not improving by any measure, we’ll see how the mills feel about buying at these levels and whether the dealers will be a little more nervous in this market environment. Nothing like a full scale commodity melt down on the screens to get people thinking.

LME Billet

LME Billet has drifted down over the course of the week from the high 500’s to the mid 500’s. The “tightness” (high nearby prices compared to lower forward prices) is easing. Where we saw Backwardation between cash to 3’ months of 40-50/MT now today it printed level. In reality, there still is a backwardation if a short wanted to move a position forward they would have to pay the long $7/MT to move it to 3’s, a far cry from $50/MT. This squeeze continues to dissipate, albeit slowly. At some point it will be like a dam with a flood of metal coming on exchange if the long holder gets nervous enough about fundamentals for the near term, and decides to exit the position in earnest. These things usually don’t end well for the protagonist. Otherwise a very costly carry in market seeing less and less activity, as the Middle East and Asia too start to have slower growth.

Fri, 23 Sep 2011 04:00:00 -0500

Steel Market Update (SMU) Steel Buyers Sentiment Index declined 2 points and now registers a +11. Both steel buyers and sellers continue to be mildly optimistic about the current steel market although at much lower levels than earlier this year.

The +11 is the second lowest reading we have measured so far this calendar year. The lowest reading was during the middle of August when we reported Sentiment at +10. The highest measurement recorded was +40 during the middle of April while the lowest reading on record was a -85 recorded in early March 2009. Steel Market Update began measuring Steel Buyers Sentiment in November 2008.

Here are a few of the comments left behind during the survey process:

"Cash flow from our customers has become much slower."

"All appears to be steady. Steel pricing changes and economy have not appeared to have shaken the current state."

"We are located in the Northeast. We would love to hear other SS [service center] feedback from our region. Demand is still at a snail's pace!""

"Margins are depressed but at least business is steady."

Steel Market Update also asks our survey respondents to provide their opinion of how they feel their company chances for success are looking out 3-6 months in the future. The result is our SMU Future Sentiment Index and our latest reading is +27 which is down 8 points from our last reading taken at the beginning of September 2011. The +27 is the lowest Future Sentiment Index reading we have seen since November 2010.

About our SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to over 775 North American companies to participate in our survey. Our normal response rate is approximately 150-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.

You can find our historical data on both the SMU Steel Buyers Sentiment Index and SMU Future Steel Buyers Sentiment index on our website in the research section of the site (www.SteelMarketUpdate.com).

Fri, 16 Sep 2011 04:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

Settlement prices on the CME U.S. Midwest Hot Rolled futures contract inched higher this week but are starting to meet more resistance. The average HRC settlement price for Second Half 2011 on CME rose this week by $3 per ton to $726 from $723 last week. 2012 HRC futures declined by an average of $4 per ton to $781 on average as per yesterday’s settlement prices versus last week.

Volume so far this week on the CME U.S. Midwest Hot Rolled futures contract was 3,560 tons (178 lots). HRC transactions recorded this week included $725 for December 2011. But surprisingly, First Quarter 2012 HRC traded at $760 down $15 per ton from indications of $775 earlier in the week as caution set in.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through June 2012:

LME Billet Cash Settlement Prices Plunge as Squeeze Dissipates

The three month LME steel billet price settled yesterday at $585 and steadfastly remains within the $550 to $600 trading range where it has been since January.

The LME billet Official Cash Settlement price is a different story. The LME Cash Settlement price peaked on August 26 at $700. In the few weeks since it has come tumbling down. As of this writing the cash bid on LME billet is $573 down a whopping $127 per MT (18%) from August 26. As has been reported in this column for several weeks, the run-up in spot billet prices were purely technical and not being driven by fundamental improvements in demand.

Furthermore, the U.S. dollar strengthened this week amidst uncertainty in Europe and this has dampened LME billet and other dollar denominated commodity prices. Historically, drops in LME billet prices have preceded drops in scrap pricing as the two commodities classes are correlated. This bears paying attention to over the next few weeks.

Scrap Market Awaits Clues for October

With the September scrap market now concluded, all eyes turn to the October scrap market. There are no indications yet if October scrap prices will be stronger, weaker or the same as September.

Things we will be watching this week include:

Will the U.S. dollar continue to rally against the Euro and thus dampen U.S. exports of scrap?

Will the weaker billet prices lead to reduced prices for U.S. exports of scrap?

Will mill price increases continue to be collected or will the mills meet resistance?

Will mill operating rates increase or decrease as September wears on?

Mon, 12 Sep 2011 04:00:00 -0500

The U.S. Census Bureau released trade data this past week which indicated scrap exports out of the U.S. were slightly lower for the month of July at $3.3 billion vs. $3.5 billion in June. According to information published by ISRI late last week, the lower volumes in July are typical seasonal patterns and “…U.S. scrap exports are still on pace to shatter last year’s record. Through July, the cumulative value of U.S. scrap exports hit $22.2 billion, up 37% from the corresponding period in 2010 when full year exports totaled $29.6 billion.” ISRI then went on to predict at the current shipping levels scrap exports could hit $40 billion during 2011.

The largest increases of scrap purchases out of the U.S. have come from: China (+38% to $6.5 billion), Europe (+55% to $2.8 billion), Turkey (+86% to $1.3 billion).

Year-to-Date U.S. Ferrous Scrap Exports

Steel Market Update received the following information from Damon Sun of Daido International regarding the scrap situation in Asia:

“With the exception of Korea, the scrap activity and prices have moderately picked up in the last few days. Prices are up $5-$8/mt into Taiwan, China, and into S.E. Asia with activity picking up. The psychology of the market being higher has taken a bit of a foothold with finished product sales also picking up.

The only exception at moment seems to be in the Korea marketplace.”

Consolidated Scrap CEO, Ben Abrams, will be one of our presenters at this year’s Construction & Steel Summit conference on October 10th in Atlanta. For more details go to our website: www.steelmarketupdate.com/events. Companies who are SMU members receive a $50 per person discount. Use priority code SMU11. Our program is SP2 on the METALCON website.

Mon, 12 Sep 2011 04:00:00 -0500

U.S. exports of all steel products declined for the second straight month and totaled 963,066 metric tons (1,061,597 short tons). This represents a 3.2% decline from the previous month and is 7.2% lower than the 1,037,750 metric tons exported during the month of May 2011.

As we review flat rolled products we found hot rolled exports down by 8.8% at 42,727 metric tons (47,098 short tons). As normal, the vast majority of the tons exported went to Mexico (19,899 metric tons) and Canada (19,523 metric tons). The third largest country for U.S. hot rolled exports was Columbia with 609.7 metric tons.

Cold rolled exports totaled 65,305 metric tons (71,986 short tons) during the month of July. This is now the second month in a row CR exports have grown. During the month of June CR exports totaled 53,598 metric tons (59,081 short tons). The largest tonnages were exported to: Mexico (23,358 metric tons), Canada (17,437 metric tons) and Venezuela (14,981 metric tons) with 6,806 metric tons going to Belgium.

Galvanized exports dropped by 19,804 metric tons and came in at 79,741 metric tons (87,899 short tons) for the month of July. Galvanized exports were down 20% compared to both May and June export tonnages. The largest export tonnages went to: Canada (51,853 metric tons) and Mexico (26,753 metric tons) with Vietnam at 366.1 metric tons coming in a very distant third.

The biggest tonnage item exported out of the domestic steel mills was plate in cut lengths. The U.S. mills shipped a total of 111,658 metric tons (123,081 short tons). This is the largest month for cut length plate exports this year. As with other flat rolled products Canada (64,215 metric tons) and Mexico (40,219 metric tons) were our two largest trading partners with Korea (1,974 metric tons) and China (990 metric tons) following the big two.

Also of note: Blooms, Billets and Slab exports dropped from 86,936 metric tons to 36,221 metric tons. Plates in coils declined to 47,574 metric tons (-20%), other metallic coated exports were 19,611 metric tons (-7.8%).

Fri, 09 Sep 2011 04:00:00 -0500

Written by: Andre Marshall, CEO Crunch Risk LLC

The Headline Markets:

The financial markets continue their volatile movements as the equities/commodities markets swing on just about every headline announcement. The market struggles between needing to find a return - always coming back to the equities/commodities markets - and an increasing realization that real demand is frankly very poor. The industries that had been performing, export (yellow goods, electric) and auto are starting to show cracks, take the likely 11.5 million demand rate for autos this year v. the 12.5 million estimated. Construction and related real estate industries (long products, white goods) continue to stagnate for most part, and freight, airline, and OCTG surviving as the only real bright spot industries. The results are essentially no Jobs growth at all. Thus our leader’s attempt to present this evenings “Jobs Program”, albeit two years late.

NYMEX Hot Rolled Coil:

Really a Tale of Two Markets with the forwards on the financial curve so far above any reality that it is being summarily ignored for most part by industry hedgers. There are aggressive buyers there on the forward curve around $760-765 for Cal ‘12 , but even though it is close to its all time high as a forward curve no one seems prepared to touch it, at least in the illiquid quantities being presented. There was a small flurry of Cal ’12 activity end week last week which traded physically at an equivalent of $740.00/ST.

The spot prices are still such that some can offer forward against spot purchases and do just fine. Where there had been more participants in the financial forwards earlier in the year most appear to be focused on their own issues, in case of hedgers trying to get a handle on their changing budget forecasts, and in the case of traders focusing on the volatility in other markets.

The overcapacity continues to weigh on our market, held at bay for now by maintenance outages, low import and even some export. Coming off of typically strong Sep/Oct into a typically weak Nov/Dec with only partial sticking of the two price increases, does not bode well for prices as usually a failed increase would mean we haven’t yet found the real bottom. Let’s hope demand really can surprise on the upside because we know supply won’t help the cause.

Scrap for Sep looks like sideways, maybe $10 up in some zones, (many are stalling to price in this first week) so that won’t be much of a driver except that it allows some mills to continue to undercut on price.

LME Billet:

Well the saga of the squeeze was finally confirmed by the LME that one party was the dominant long and held the majority of stock. This party was forced by the LME, starting two weeks back, to “lend” (sell cash and buy a future date”)at a maximum limit thus allowing shorts, who do not intend to deliver, the ability to “borrow” (buy cash and sell the future date) in order to manage their positions.

Clearly one cannot get into the mindset of the long holder except to recognize that they felt that the fundamentals of the market allowed them to buy up all the excess metal in exchange warehouses. Delivery schedules for those warehouses, which also house other exchange metals, probably are delaying the delivery out of those materials by as much as months and in some instances might be forcing re-delivery back in. The bet will be that near term market in the Middle East and Asia will be sufficiently strong that will it allow them an exit into the marketplace at premiums sufficient to cover costs, such as warehousing and finance, and in a reasonable period of time say 4th Quarter..

The advantage for this long holder is that the forward curve in Billet beyond the 3 months is in Contango, which would allow them to “carry” the material at little to no cost. If the market doesn’t allow for the absorption of this material we will see a lot of metal go back into the LME which will collapse prices in billet and likely in turn secondary scrap prices here in the US.

It will be an interesting development to watch as it unfolds for if the physical market does not cooperate and re-delivery is required it could be a very costly exercise for the long. In the recent period, the 3 months price has hovered in the high 500’s between 575 and 600. The incessant bidding on cash has gone away for the most part, but when buyers appear it $600 or more.

Note: Andre Marshall and Jack Marshall of Crunch Risk LLC will be attending the SMU Construction & Steel Summit conference in Atlanta on October 10th.

Our next Hedging Price Risk workshop is September 29, 2011 at the Chicago Board of Trade in downtown Chicago. On November 2, 2011 we will have another Hedging Price Risk workshop at the NYMEX in New York City. Both of these workshops come with tours of the trading floors in Chicago or New York City.

Jonathan Putman of Birmingham Futures (see graph below) will also be in attendance at our Atlanta conference and he will be attending the Chicago Hedging Price Risk workshop as well.

Wed, 07 Sep 2011 04:00:00 -0500

Steel Market Update (SMU) Steel Buyers Sentiment Index rose three points to +13 based on our early September steel market survey results. During the middle of August survey period SMU measured our SMU Steel Buyers Sentiment Index at +10 which was the lowest reading during the 2011 calendar year.

Going back to early May, our SMU Steel Buyers Sentiment Index has been range bound between +10 and +25 after reaching record highs during the first four months 2011. In early April our index measured +40 which was the highest number recorded since we began measuring Buyers Sentiment in November 2009.

Based on comments made during the survey process leads SMU to believe steel buyers and sellers are concerned about their business and their ability to be successful as they worry specifically about competition and demand issues and how they are impacting the industry.

During the survey process industry participants reported:

“Competition still not attempting to get pricing up or even stable. They are in fact telling customers that the price increases will not stick and that they have plenty of cheap steel coming in. How stupid is that?” (Service Center)

“Even though things are good for us right now, I fear the general malaise in the economy is going to end up hurting us eventually.” (Automotive Service Center)

“Orders are steady, margins are down.” (Manufacturing Company)

“I'm very concerned about demand leading into Q4.” (Manufacturing Company)

SMU Steel Buyers Future Sentiment Index Improves to +35

SMU Steel Buyers Future Sentiment Index improved during the beginning of September measuring +35 which represents a 7 point improvement over our mid-August reading. SMU Steel Buyers Future Sentiment Index peaked earlier this year at +54 while the +28 recorded in mid-August was the lowest reading measured during calendar year 2011.

About our SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to over 775 North American companies to participate in our survey. Our normal response rate is approximately 150-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.

You can find our historical data on both the SMU Steel Buyers Sentiment Index and SMU Future Steel Buyers Sentiment index on our website in the research section of the site (www.SteelMarketUpdate.com).

Fri, 02 Sep 2011 04:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

Weird Markets: On Low Volume, LME Billet Price Surpasses HRC this Week

Settlement prices on the CME U.S. Midwest Hot Rolled futures contract rose $5 - $6 per ton this week amidst more mill price increase announcements. The average Hot Rolled Coil (HRC) settlement price for remaining months of 2011 on CME rose this week by $5 per ton to $711 from $706 last week. 2012 HRC futures rose by an average of $6 per ton to $769 on average as per yesterday’s settlement prices versus last week. Futures market participants remained sidelined this week continuing to search for confirmation that the mill price increases are continuing to take hold.

August is typically a low volume month in many financial markets around the world, and HRC was no exception, especially this week. No contracts traded hands this week on the CME U.S. Midwest Hot Rolled futures contract as sellers moved offers higher throughout the week and buyers were reluctant to embrace the higher prices. We don’t expect much activity in the HRC futures market to resume until after the Labor Day weekend.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through June 2012:

LME Billet Hits $700 – Highest Since Pre-Lehman August 2008

The LME Official Cash Settlement price last Friday was $700. This marks the first time that the LME cash settlement price has been at $700 or above since August of 2008 and before the fall of Lehman Brothers precipitated the economic crisis and the ensuing recession.

LME 3-month continues to hover around $600 reflecting tightness in nearby Billet supply. Some speculate that the tightness in billet is due in part to a technical squeeze while others are seeing improving demand. Firm scrap prices are another reason that the LME Cash Billet prices are hovering at pre-recession highs.

It is rare that LME Billet and NYMEX HRC trade at par. One would expect that either billet will decrease in price from current levels or HRC will increase in price to return to normalization in which HRC spot trades at a significant premium to LME Billet spot price. Let’s look at scrap to see if it will foretell the next move in billet prices.

Scrap Market Firmer in September

The majority of the September scrap buying activity by U.S. steel mills is not expected to fully ramp up until after Labor Day weekend. We have heard early indications that some mills are quoting sideways to up $10 per ton for September. One factor that would change this is mill capacity utilization. We are hearing that several U.S. mills have let their pipeline of scrap become depleted and will need to buy full scrap programs in September. We have also heard that several mills want to buy additional scrap in September to get ahead of the HRC price increases in hopes of expanding margins in Q4. Trade sources have also advised us that prime scrap from Europe is in short supply following the summer automotive factory shutdowns in Europe for the month of August just concluded. As the September scrap market develops and we collect more data points we will pass the information along.

8 / 29 / 2011 - SMU and Andre Marshall of Crunch Risk LLC conduct a workshop about hedging price risk within the steel industry

Mon, 29 Aug 2011 04:00:00 -0500

Steel Market Update and Andre Marshall, CEO of Crunch Risk LLC, are conducting a workshop for those who are actively involved in the buying or selling of steel and are concerned about price volatility within the steel markets. Our “Price Volatility & Hedging Steel Price Risk” workshop will be on September 29, 2011 in Downtown Chicago at the CME Group/Chicago Board of Trade building and will include a tour of the CME trading floor.

Our workshop is tailored for those looking to hedge price risk, protect margins, protect inventories, or offer long-term pricing to their customers. In addition to the knowledge gained with the workshop, you will go on a tour of the CME trading floor to get a first-hand look at where hot rolled futures are traded. Some things you will learn at the workshop include:

    * What is “Hedging,” and how is steel different from other metals?
    * What are the benefits to using financial instruments vs. taking a long       inventory position?
    * How does “Liquidity” affect the market?
    * What are the costs involved, and how do I minimize costs and maximize       returns?
    * What is the Forward Curve?
    * When does the market not work for you?
    * What is the difference between “Futures” and “Swaps”?
    * How does the CME Hot Rolled Contract Work?
    * How do I protect my inventory pricing and profits?
    * How do I handle price risk when I am taking physical delivery of steel?
    * Can I offer my steel customers long-term fixed pricing?
    * Can Cold Rolled, Galvanized or other flat rolled steels be hedged?
    * How does the steel hedge work with my physical purchase?

The instructor, Andre Marshall, is an active broker in the flat rolled market in North America and Europe focusing on futures and OTC swaps in hot rolled coil, cold rolled coil and hot dipped galvanized. He will provide you a “hands-on” experience – by working through examples provided by him and those coming from the class and letting you determine if the circumstances are right to take a hedging position.

Our workshop will include information about active traders, market makers and others associated with Futures Trading and Swaps. Our goal is to inform and provide tools so you can select whomever you feel most comfortable working with after leaving our workshop.

You can learn more about the workshop by going to the Events section of our website (www.steelmarketupdate.com/events) or by clicking on this link. You are also welcome to contact us in our office at 800-432-3475 (706-216-5440).

Fri, 26 Aug 2011 04:00:00 -0500

Written by: André Marshall, President, Crunch Risk, LLC www.CrunchRisk.com

As the overall financial markets have calmed down and regained some lost ground, the finished steel markets have been relatively quiet. The action in steel seems to all be in the spot market of late. In Hot Rolled Coil (HRC), the mills are trying to push through an increase of $60/ST here on our shores; in LME Billet, the cash market is continuously bid by what most industry participants now believe is one party. The only commonality these two markets seem to have right now is how artificial they seem. Most industry players have little confidence the mill price increase in US flat products will stick while the ever tightening of the cash market in billet is hardly the result of normal market fundamentals. Both stories will be interesting to follow in the coming weeks.

NYMEX HRC

The Calendar 2012 months continue to be well bid, even more so than before, with buyers apparently interested in those months in the $735-740/Short Ton (ST) area. Sellers, on the other hand, have been reticent to trade at those numbers as yet and apparently are waiting for more economic forecast data points before engaging which side to buy. Meanwhile the Balance of 2011 months are slightly better bid by about $20/ST coinciding with the increase on the spot transactions. Prime scrap is stable with expectations that it should remain so. Demand from mini mills will be the driver for this market in the near term. Integrated steel mills will have to be able to fill their furnaces beyond September if minis are to be in a position to pull normal scrap levels as metal margins are just too lean for them to put on a serious price war. Otherwise, demand will have to surprise, and this author is not betting on that scenario.

LME Billet

For anyone watching the Billet market on a daily basis, it’s hard to characterize it as any less than “the squeeze is on”. Most industry participants believe the incessant bidding for cash metal is coming from one trading company. Some estimates put their warrant metals holding already in the tens of thousands of tons, and a number of articles have been written about the continued cancellation of metal off warrant from LME warehouses in an environment that is anything but robust! Provides an interesting opportunity here for anyone holding “deliverable” Billet metal in the US that doesn’t need it in the near term as the cash price has been as high as $645/Metric Ton (MT) in the last few days. It is last bid at $620/MT; whereas 3’s prices are closer to $590/595/MT. The backwardation of $30-35 /MT has been as high as $45/MT at times.

Fri, 19 Aug 2011 04:00:00 -0500

Written by: Joseph Reinmann, CEO Kataman Metals

August / 18 / 2011 – HRC Futures for 2012 Rise $31 per ton

Settlement prices on the CME U.S. Midwest Hot Rolled futures contract rose this week amidst a flurry of mill price increase announcements. The average HRC settlement price for Second Half 2011 on CME rose this week by $17 per ton to $698 from $681 last week. 2012 HRC futures rose by an average of $31 per ton to $771 on average as per yesterday’s settlement prices versus last week. Futures market participants are waiting for more confirmation from the physical market that mills will indeed collect the price increases as we move from the doldrums of summer into what some expect to be a more active steel marketplace this fall season.

Volume this week on the CME U.S. Midwest Hot Rolled futures contract was light as sellers moved offers steadily higher throughout the week and buyers were slow to embrace the higher prices. Only 1,800 tons (90 lots) of HRC futures traded on the CME U.S. Midwest Hot Rolled futures contract so far this week.

Below is a table with yesterday’s HRC futures settlement prices on the CME contract for each month through June 2012:

LME Billet Contract Continues to Expand

The three month LME steel billet price settled yesterday at $570 and remains within the $550 to $600 trading range where it has been since January.

The LME Official Cash Settlement price yesterday was $620.

19,645 lots (1.28 million metric tons) of steel billet traded on the LME in July. As of yesterday, there were 26,200 tons of billet on warrant in the U.S. representing nearly half of all LME steel billet inventories.

Chicago, New Orleans and Detroit have all seen a rise in LME steel billet stocks over the last quarter.

Scrap Bookings Accelerate

The pace of bookings of cargoes of scrap being purchased from the U.S. has accelerated this week from buyers in both China and Turkey. Scrap demand from China has been firm all week with reports that several cargoes from the U.S. were sold to Chinese mills. Additionally, Turkish mills are now anticipating good demand for finished products at the start of September as Ramadan comes to a close and buyers need to replenish their scrap pipelines.

Should the higher steel prices begin to take hold in the U.S., expectations are that U.S. may mills seize the opportunity to buy more scrap in September in anticipation of higher trending finished product prices.

Fri, 19 Aug 2011 04:00:00 -0500

Atlanta, Georgia/ August 18, 2011: Earlier this week, Steel Market Update (SMU) conducted our second steel market survey for the month of August. One of the measurements made during the survey process is to determine how buyers and sellers of steel feel about their company’s ability to be successful in the current business environment.

SMU Steel Buyers Sentiment Index was measured and is being reported as +10. This is a four point drop from the +14 measured in our beginning of August survey conducted earlier this month. The +10 reading, although technically still within the “optimistic” range is the lowest reading recorded this year.

In early April 2011 the highest measurement was recorded at +40 but has been slowly deteriorating since then.

When compared to our SMU Steel Buyers Sentiment Index recorded in mid-August 2010 our +10 represents a 24 point improvement over the -14 measured at that time.

John Packard, Publisher of Steel Market Update and the creator of the SMU Steel Buyers Sentiment Index said, “Those actively involved in the steel industry are expressing their frustration with the lack of clarity in the economy coupled with demand and supply questions which continue to plague the industry.”

Steel Market Update also asks those taking our survey to project out 3-6 months in the future and advise how they feel their company will be at that time. We call this our SMU Future Steel Buyers Sentiment Index and the results from this week is +28 which reflects a decrease of 7 points from the +35 recorded earlier this month. The highest reading for Future Buyers Sentiment was +54 in April of this year. The +28 is the lowest reading (by one point) we have measured so far this year.

During the survey process we captured the following comments from those responding:

“We have seen a large drop in volume from the time of the downgrade from S & P.” (manufacturer)

“Our sales have been good, however I don't feel good about the market going forward.” (construction related wholesaler)

“We saw a marked drop off in July, and August is slow to take off again, but I think we're going to be okay.” (manufacturer)

“I revert back to my comments of 6+ months ago when I could not move off the "fair" category as I felt that there was a good possibility of the economy faltering based on commodity prices including steel. Unless something miraculous happens, we better prepare for a second dip equal to about 50% of what we experienced the 1st time. We have to remember that the Great Depression lasted 10 years, the Great Recession might last 5 or so years.” (construction related manufacturer)

“Minimal opportunities to import profitably.” (trading company)

About our SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to over 775 North American companies to participate in our survey. Our normal response rate is approximately 150-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.

You can find our historical data on both the SMU Steel Buyers Sentiment Index and SMU Future Steel Buyers Sentiment index on our website in the research section of the site (www.SteelMarketUpdate.com).

Mon, 15 Aug 2011 04:00:00 -0500

Steel Market Update is once again holding our main steel conference in conjunction with METALCON which this year will be held at the World Congress Center in Atlanta, Georgia. Our conference which we are calling a “Construction & Steel Summit” will be held on Monday, October 10^th with registration beginning at 10 AM and lasting until 4:30 PM (followed by a networking/cocktail party).

The conference will be broken into three segments:

Economic & Steel Trends/Forecast: What does the economy hold for 2012?

Our speakers will include: Timna Tanners, Materials & Steel Analyst with Bank of America Merrill Lynch; John Anton, Manager Steel Services with IHS Global Insight; and Peter Wright, Construction & Market Consultant to Gerdau.

Current Industry Issues: Sharing the Wealth – Scrap & Raw Materials Analysis; the China Affect on Prices; Moving Metal – Trucking & Logistics.

Our speakers will be Ben Abrams, CEO Consolidated Scrap; Paul Shellman, Principal Consultant, Wainscott Commodities; Jim Ruiz, Senior VP, PLS Logistics.

Steel Mill Roundtable: Factors Shaping the Industry into 2012.

Our panel includes Tom Marchak, Vice President, Commercial, Serverstal NA; Rick Blume, General Manager, Commercial, Nucor; Jerry Richardson, General Director, CSN LLC; James Banker, Executive Vice President Commercial, NLMK USA (former Duferco Farrell, Sharon Coatings & Beta Steel). Our moderator for the mill program will be Joe Innace, Global Editorial Director, Platts Steel Markets Daily/Steel Business Briefing.

Included will be lunch, breaks and a networking/cocktail party at the conclusion of the program.

Registration for our conference is through METALCON and our program is referred to as: Special Program #2 (SP2) and the cost is $300 per person ($250 for Steel Market Update member companies). If you need assistance in the registration process (METALCON convention floor is free if you register prior to September 27) you can contact Suzanne at 617-965-0055 ext 126. You are also welcome to contact our office with any questions you might have about this or any other SMU program: 800-432-3475 (706-216-5440). Or, you can send an email to: info@steelmarketupdate.com

We asked Suzanne at METALCON If someone has already registered for METALCON and would like to add our conference to their registration what do they need to do. METALCON replied, “Yes, they can go through the system with their email address and badge number. (from their confirmation) If they go back to their confirmation, there is a link there to upgrade your registration.”

We look forward to seeing you in Atlanta on October 10^th.

8 / 12 / 2011 - Our weekly update regarding activity in the HR Futures & LME billet markets

Fri, 12 Aug 2011 04:00:00 -0500

Written by: Andre Marshall, CEO Crunch Risk, LLC.

NYMEX Hot Rolled Coil (HRC)

We had been quite dull until yesterday when Q4 traded around $687, and 1st Half 2012 traded around $745/$750. As you all know a couple of steel mills have announced price hikes in an attempt to stop the bleeding. With lead times so short it’s hard to see how any price increase will succeed, but one never knows how steel buyers will perceive the market in terms of demand and their inventories. So, it is probably worth the effort.

Contrary to some mills assertions their order books are decent, lead times remain as tight as ever. Nearby bids on the Hot Rolled Coil (HRC) market continues to weaken, inching ever closer to mid $600’s. Calendar ’12 levels remain bid in mid $700’s with very little interest at those levels from either side.

The spot price cycle in steel continues with no real surprises or deviations from past cycles that I can see. The only difference this time from last year is the price of scrap -- how scrap prices remain high with mini mills getting squeezed on metal margin and with demand suspect is beyond me. For some time, Turkey and China’s bid on secondary scrap provided a floor for the dealers. The question going forward is whether that floor is still there and if demand for prime grades of scrap can be sustained in this environment. Logic would say no, but the majority out there believes it will. This is still a key driver assuming integrated steel mills can steal market share and keep their furnaces pretty full. If they cannot, steel prices will head lower despite scrap prices.

Iron Ore looks to be headed into a retracement period, hard to tell for how long. Chinese steel consumption is still lackluster and now working off inventories.

LME Billet

Price weakness appears to have taken hold. The 3 months price was down again today to $574 area. Cash did not trade and was not even quoted most of the day. There is a sense that the backwardation may be about done. Turks appetite and Black Sea supply remain the key drivers in this market. It is important to note that a fair amount of Billet has been delivered into LME warehouse in the U.S. against the so far very healthy cash prices, which reached as high as $630 at their peak.

This is what makes a market - tightness in one part of world can benefit producers or inventory holders in another. Until situations in Mid East and Central Asia picks up, I think LME Billet will continue to erode. Likely there should be support at its old low range around $525-530 area. If scrap in U.S breaks down further, then we’ll see materially lower LME prices.

Note: Andre Marshall is one of the most active and well positioned brokers in the hot rolled futures markets. He is also the instructor for our Hedging Price Risk workshop – the next one being held in Chicago at the Chicago Board of Trade building in conjunction with the CME Group on September 29, 2011. For more details and registration go to: www.SteelMarketUpdate.com/Events