Last week the dollar continued itsrally after Japan’s surprise QE announcement. The shift in currencies is opening a significant profit opportunity forEuropean, Turkish, Korean, Brazilian, Japanese and Australian exporters to shipsteel to the USA.  Regardless, Nucorannounced a flat rolled price increase following those made by AK Steel, USSteel and ArcelorMittal from the previous week. 

Scrap and ore hit new lows.

Oil also made fresh lows, but then reboundeda bit.

U.S. PMI data beat expectations up to59 from 56.6 in September and beating expectations of 56.2 while US Octoberauto sales rose 6.1% to 1.28 million units or a 16.46 million unit rate.Expectations are for a strong finish for the year, which would be the strongestsince before the financial crisis. However, inventories are starting to build MOM, but the build is mostlikely to prepare for the holiday season as the YOY numbers are -1 day across allautomakers. Decreasing interest rates and gas prices coupled with a stableeconomy and job growth are factors helping to…drive continued sales.

All the economic news wasn’t rosyhowever.  The services PMI missedexpectations and construction spending dipped. Factory orders also shrank marginally. The highly volatile nonfarm payrolls report missed expectations, butcontinued to show gains above 200k.  Theunemployment rate did shed a bit down to 5.8% vs 5.9% in September and beatexpectations of 5.9%.

Last week, CRU printed: US $637 -3, Germany$483 -4, Italy $469 -14, China $458 -2 (all in short ton).  Differentials still remain extremely elevatedranging from $82 – $197 with Chinese CRC at -$187.  TSI daily prices did the following WOW: USHRC prices 640 -2, NE HRC €413 – 7 ($466/st -10), ASEAN 499 -1 ($452.59 /st -1)and Turkish Scrap 317 -6. 

Platt’s has HRC at 640 flat, has HRC up $5 to $635/st.

Iron ore was under pressure last week.The IODEX dropped $3 to $76 while the 3 month ore futures also dropped $3.4 to $75.46.

Scrap and pig iron got hit across theboard with most scrap products down about 2-3%, except busheling down 5%,  and pig down 4%.  Turkish scrap is at $317, EC shred $302.5 andBusheling is $362.5.  Black sea andChinese pig iron dropped to $375 and $331, respectively. Rebar prices dropped1.5% globally.


AISI data is showing weakenedproduction levels at 1.815 million (see below) and capacity utilization at75.5% (this is for all steel production fyi). Import license data for Octoberlooks to be 1.54 million flat rolled short tons.  November data is off to a quick start, butnot enough data was made available to make a reliable estimate.  The continued increase in imported tonscoupled with increases in last month’s MSCI inventory data makes a good case toexpect a further build this month.  Thisis concerning considering the seasonal pattern of destocking at service centersheading into the end of the year.


The S&P 500 hit new record highs,but steel mill stocks had a rough week. 

AK steel traded as low as $6 afterreporting their earnings.  JamesWainscott’s purchase of $1m of stock and a positive ruling on a GOES trade casehelp AKS rally back above $6.5 by Friday. Nucor and US Steel got whacked out of the gate after hedge fund managerDavid Einhorn expressing his bearish views that US Steel’s earnings have peakeddue to the near record spread between domestic and foreign steel prices.  Welcome to the steel industry Mr. Einhorn.  That view has been getting its teeth kickedin for more than 12 months now.  We willsee if the tide changes or if you will be the next contestant on, as Bob Barkerputs it, “the price is wrong.”

NUE recovered back above $54 while USSteel finished the week down 6% at 37.57 after getting as low as $35.11.  STLD remained quiet finishing down .5% on theweek at $22.50. MT was down 4% to $12.66.

Iron ore miners were mostly unchangedexcept for Vale, which was down 6% to $9.43 as iron ore prices continued todrop, the real devalued and the recent re-election of Dilma Rouseff was notseen favorable for business.      

Zinc was down 3% to 2240 and silver dropped2.4% to 15.71.  Gold was mostly unchangedat 1170. 

WTI crude oil shed 2.3% to settle at78.65 in a volatile week of trading seeing prices as low as $75.84.  A smaller than expected increase in oilinventories, reduction in Libyan output due to attacks on western oil fields, arumored explosion of a Saudi pipeline and comments made by OPEC officials thatproduction cuts would result from Brent crude prices at $70 helped to bolsterprices.  Natural gas rallied sharply up14% to 4.4 in response to colder than expected weather this week. 

Currencies:  The dollar index continued its rally.  Expectations that other countries ex-US willhave to compete with Japan’s recent surprise QE announcement in a race to thebottom have sent currencies including the Yen (-1.5% to 114.6), Euro (-.42%1.2455), Brazilian Real (-3.26% 2.559), Turkish Lira (-1.58% to 2.258), AussieDollar (-1.14%), Korean Won (-2.3% to 1093) and, worst of all, Russian Ruble(-8.6% to 46.72) to fresh lows.  Thesecurrent foreign exchange rates should pressure the entire commodity sector andprovide attractive opportunities for international exporters to sell steel tothe US.  A larger macro concern would bethe effect of a sovereign debt default on global financial markets and theknock on effects into asset pricing and demand.

U.S. and German ten year ratesretreated to 2.3% and .82%, respectively. 

Gasoline prices continue to head lowerat 2.93/gallon, which should result in positive gains in consumer confidenceand retail sales (especially auto). The VIX is slowly retreating followingOctober’s stock market correction. 

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

Upside Risks:

        Price HikeEffectiveness 
        Strongmanufacturing data
        Sharp drop inimport data
        Trade Case Rumors/Filings
        Unplanned outages
        Continuedimproved demand
        Infrastructurebill/long-term solution to highway spending bill

Downside Risks:

        NEW -Currency issues(see above)
        Another recordmonth of imports
        Increasedinventories at service centers
        Price Hike – ifit fails, will it bring forward tons and there will be a gap that sinks prices
        Continued weakiron ore and global finished steel prices
        Weak ore leadingto weak scrap and pig iron prices
        Year-endinventory destocking
        High productionlevels
        Economicdownturn, especially in China or Europe reverberating to U.S.A.
        Weak demand inhousing or automotive