Last week’s surprise move by the SwissNational Bank to end their policy of pegging the Swiss Franc to the Euro at1.20 created immediate volatility in the currency markets sending the Euro tofresh lows against the against thedollar.

Euro Swiss Franc Cross

Euro US Dollar Cross

Continuedstrength in the U.S. dollar has exacerbated a glut of imports adding toabnormally large service center inventories. 

HRCFutures

This week saw further pressure in HRCfutures with Q2 and Q3 smashed lower, down $17 and $25, respectively.  The CRU corrected the prior week’s increaseprinting US Midwest HRC at $584 -$13, Germany $482 -$6, Italy $422 -$2 and China$450 +$1 (all in short ton).  CRU printedUS CRC at $725 -$10 and HDG at $789 -$3. TSI daily prices did the following WOW:US HRC prices $591 -$7, NE HRC €407 +€7 ($427/st -$3), ASEAN $452 -$10 ($410/st-$9) and Turkish Scrap $316 -$4.  Platt’shas HRC down $30 to $565, CRC-$25 to $700 and HDG flat at $800.

Flacksteel.com has HRC down $5 to $575.  Flack Steel Global Weighted Index lost $5 to$448/st.  Except for Brazil and India,the CRU has every other country between $148 and $209 above the US Midwestprice.

AISI weekly production increased to79% with 1.9 million tons produced (this for all steel production).  January flat rolled import license data istrending toward 1.37m short tons.

The dollar index continued to rally,up 0.59% to 92.52 with the Euro off 2.37% to 1.1567 after the Swiss NationalBank removed their peg to the Euro.  TheTurkish lira lost 1.36% to 2.33, the Canadian dollar dropped 1.08% to .8346 andthe Russian ruble fell another 5% to 65.31. Outside of the moves above and the Korean won gaining 1.14%, it was arelatively mellow week on the currency front. The ECB will announce details of an expecting quantitative easingprogram this Thursday, January 22nd.

The S&P 500 fell 1.1% to 2012.9 whilethe VIX spiked 20% to 20.95. Steel stocks were crushed last week as flat rolledprices continue to descend.  US Steel -$2.56to $22.01, AK Steel -$1.34 to $4.06, STLD -$1.55 to $17.02, NUE -$3.36 to$44.42 and MT -$0.60 to $9.75.

Iron ore returned to selling off asthe IODEX shed $2.25 to 68.25 and March ore futures fell $1.9 to $69.15. BHP,VALE and RIO were all down. BHP -$0.79 at $46.14, RIO -$1.33 to $44.20 and VALE-$0.14 to $8.41 while CLF gained 24.48% to $8.90 on rumors of potential biddersfor their closed Bloom Lake ore mine.

Pretty much every raw material andfinished steel product covered was down last week 1-4% with the worstperforming being HRC (US, Antwerp, Shanghai), rebar (Chinese physical andfutures, US and Turkey) and Black Sea pig iron. 

On theeconomic front, the Empire Manufacturing Index beat expectations at 9.9, upfrom -1.2 last month, but the Philadelphia Fed badly missed expectations of 19at 6.3, down from 24.3 last month. December industrial production shrank 0.1% after growing 1.3% inNovember.  December retail salessurprisingly missed expectations of 0.1% growth clocking in at -0.9%.  Weak retail sales in the wake of falling oilprices left many scratching their heads. The Federal Reserve released their Beige Book report on Wednesdayshowing a strong U.S. consumer, which was reinforced by a very strong 98.2University of Michigan consumer sentiment figure on Friday.

Consumerprices fell 0.4%, meeting expectations, however stripping out food and energy;they were flat and missed expectations of 0.1% growth.  Producer prices continued to fall, down 0.3%,but core prices gained 0.3%, beating expectations of 0.2%.

For the week, zinc fell 2.5% to $2092/mt. Copper slid 5% to 261.7/pnd. Gold rallied5% to 1277 and silver was up 8% to 17.75.

Crude oil finished the week up .68%for its first respite since Thanksgiving.  Natural gas rallied 6% to $3.13/mbtu asinventories fell 7% to 2,853 billion cubic feet.  The average U.S. gas price pushed lower againto $2.08/ gallon.  Crude, distillate andgasoline inventories all gained 1.4%, 2.14% and 1.34%, respectively.

Ten year ratesfell across the board (rates in bold). The U.S. 10 year interest rate was down 5.56%to 1.84%, the German ten year yielddropped by 7.72% to 0.45%, theBritish 10 year was down 4% to 1.53%the Spanish ten year yield was down 13% to 1.5%,the Italian ten year yield was down 12% to 1.67% and the Japanese ten year yield was down 13% to .24%.

I currently have the following upside anddownside risk for HRC prices:

Upside Risks:

–        Plannedproduction shutdowns
–        Trade casefilings
–        Supply sidedisruptions
–        Strongmanufacturing data
–        Rallying scrapprices
–        Sharp drop inimport data
–        Infrastructurebill/long-term solution to highway spending bill
–        Sharp upturn innonresidential construction

Downside Risks:

–        Increasinginventory levels/Q1 destocking
–        Relatively warmwinter leading to lower natural gas and scrap prices
–        Dollar rally/currencyissues/sovereign default
–        Increasing importmarket share
–        Falling globalprices leading to decreased import offers
–        Continued weakiron ore and global finished steel prices
–        Weak scrap and/orpig iron prices
–        Crashing oil& energy prices  
–        High productionlevels
–        Economicdownturn, especially in China or Europe reverberating to U.S.A.
–        Weak demand inhousing or automotive