Last week saw iron ore plummet to newlows with the IODEX printing down 7.62% at 69.75 for the week. The Decemberiron ore futures contract saw a slight rebound Friday after the surprise ratecut announcement by the PBOC, China’s central bank.  Just prior to the news, December ore futureswere trading as low as 69.25.  Once thenews hit, a sharp short covering rally saw prices reach as high as 73 beforeretreating back to close the week at 71.50. Today’s trading saw the rally fail as prices traded back down to the 69level. 

Over the past months, China has made anumber of moves, including relaxing restrictions on property investment, in anattempt to stem housing prices from moving lower. While the eventual outcomemay be a rebound in prices, the iron ore market has voted and is saying it istoo little too late.  The supply isoverwhelming and iron ore inventories are showing another build this week.

The price deflation is occurring elsewhereas evidenced by last week’s 3% drop and new multi-year low in Chinese rebarfutures ($400/t), 3% drop in Turkish rebar ($495/mt), 3% drop in Black Sea pigIron ($353/t) and almost 7% drop in Black Sea billet ($412.50/t)

Further negative developments lastweek out of China include a weaker than expected HSBC Flash PMI reading at50.  Germany’s flash PMI was also 50while France’s was at 47.5. 

There was mixed economic data in theU.S. with the Philadelphia Fed Manufacturing Index crushing it at 40.8 vsexpectations of 18.3, however the Empire Manufacturing Index missedexpectations of 12 by printing 10.2, capacity utilization slipped to 78.9% from79.3% and industrial production slid 0.1% missing expectations of a gain of0.2%.  The CPI was flat and the PPI rose0.2%, both above expectations of a drop of 0.1% and 0.2%, respectively.

October building permits of 1.08 millionannualized beat expectations of 1.04 million, existing home sales of 5.26million annualized beat estimates of 5.17 million and the National Associationof Home Builder’s November Housing Market Index at 58 also beat expectations of55. Housing starts, however, missed expectations at 1.009m versus estimates of1.025m.

Last week, CRU printed: US $634 -4,Germany $474 -2, Italy $463 unch, China $454 unch (all in short ton).  The Flack Steel Global Weighted Index remainedunchanged at $465/st.  Domestic price differentialsstill remain extremely elevated ranging from $102 – $199 with Chinese CRC at -$196.  TSI daily prices did the following WOW: USHRC prices 646 -4, NE HRC €408– 4 ($459/st -9.5), ASEAN 496 -3 ($449.87 /st -2.7)and Turkish Scrap 304 +1. 

Platt’s has HRC flat at 640, has HRC flat at 630.  AISIproduction levels increased marginally to 1.854 million while capacityutilization moved 0.6% to 77.1% (this is for all steel production).

Flat rolled Import license data forOctober looks to be 1.586 million short tons. November data license data is projected to be slowing to 1.214m,however, that is still a 14.5m annualized rate and higher than each of the first6 months of the year.  

The S&P 500 closed the week up 23.8at 2061.8 while the VIX fell to 12.9.  NUEwas up .50 to 54.40.  US Steel finishedthe week down 1.60 at 34.69.  STLD gained.20 to 22.97.  AKS dropped .14 to 6.40and MT was up .20 to 12.49.

Iron ore miners continued to move lowerwith ore prices.  CLF shed .80 to 9.91,BHP dropped 1.10 to 57.34 and RIO shed 0.60 to 47.51. Vale gained 0.50 to 9.41after all ore miners rebounded on Friday with ore prices.

For the week, zinc gained 1.88% to 2294.75/mt,gold gained 1.08% to 1198.4 and while silver rallied 0.89% to 16.459.

WTI crude oil gained 0.91% to settle at76.51.  Natural gas gained 6.12% to $4.27/Mbtureversing some of the previous week’s losses. The average U.S. gas price hit $2.82/g, the lowest since 2010.  While the actual pressure on energy relatedsteel consumers remains unknown and a function of how low oil prices ultimatelyfall, there is no doubt the lower prices at the pump will add to US GDP viaconsumer spending.

The dollar index continued its rallyfinishing the week up a solid 0.9% to 88.31. 

The yen and euro continued to find newlows with the yen closing the week at 117.79 and euro at 1.2391.  The Canadian dollar (.8903), Brazilian real(2.52) and Russian ruble (45.83) rebounded in response to relatively strongeroil prices and the Chinese rate cut while the Aussie (.867) rallied, but stillclosed down on the week.  The currencyadvantages for foreigners   looking to exportto the U.S. remains impressive and a concern to add pressure to HRC prices viaimports and depressed input prices. These current foreign exchange rates shouldpressure the entire commodity sector at large and provide attractiveopportunities for international exporters to sell steel to the US.  A larger macro concern would be the effect ofa sovereign debt default on global financial markets and the knock on effects intoasset pricing and demand.

The U.S. tenyear yield was down slightly to 2.31% (-0.45%)while European rates fell with the German ten year at 0.77% (-1.91%), theSpanish ten year down to 2.01% (-5.32%)and the Italian ten year at to 2.21%(-5.67%).

Last week we had the following economic announcements:

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

Upside Risks:

        Strongmanufacturing data
        Sharp drop inimport data
        Trade case filings
        Supply sidedisruptions
        Infrastructurebill/long-term solution to highway spending bill

Downside Risks:

        Currency issues
        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