Edward Meir/INTL FCStone Apr. 2014 Report - FERROUS

SHANGHAI, Apr. 3 (SMM) - The following is an excerpt from monthly market overview for April 2014, written by Edward Meir, Indepent Commodity Consultant with INTL FCStone Inc.

NYMEX HRC

March was a fascinating month for steel. By the numbers, it was a continuation of the February bear market; the descent simply slowed as we started at $638/ton and moved down to $620/ton by month end, with some large volume buyers heard to be catching offers as low as $615/ton. The mills enjoyed lower raw materials costs in February and in March, but the $50/ton plunge in prices from $670 at the start of February convinced the mills that they needed to do something. So as is often the case when prices are collapsing, mills attempt price increases. At the outset of the increase announcement (new base prices = $660), skepticism dominated. Imports were considerably cheaper and buyers were reluctant to pay up. Mills maintained discipline, however, and suffered through a few weeks of lean order volumes. In the end, the low inventory positions service centers were taking ended up aiding the price increase; buyers that could not wait on imported steel needed to pay up for immediate needs. We actually haven’t seen an index print in April yet, but most expectations are that it will be above $630/ton, and that may be conservative. In the end no one knows, and this is where the mills still have the advantage; price increases in a collapsing market are the best way to keep pricing opaque, and opaque pricing is one of the last few advantages producers hold. We see part of this price increase sticking, at least temporarily. However, increases during a falling market tends to pull orders forward and that means business mills will get this month is business they would have had later. Contribution by Spencer Johnson.

IRON ORE

In our last iron ore comment, we called for a considerable drop in prices and that was indeed how things played out. Indeed, March was a fairly tough month for the steelmaking ingredient, but as has so often been the case in iron ore, it could have been much worse. We are referring to the rebounding action we saw once spot ore broke the $110/ton level, but even more importantly, we also reference renewed hopes of Chinese stimulus that have kept the forwards from falling below the psychologically crucial $100/ton level. From $121.54 at the end of February, it was a steep fall to $110/ton which was briefly breached as early as March 10th. Of course, since then we’ve seen a modest rebound back to $112/ton, but the real volatility has not been in the spot but in the forwards, where wildly differing expectations for China were largely the culprit. August futures for example settled as low as $100.75 on March 10th, a significant back, but now August has rallied over $10/ton since that low and is now trading level with spot. Even though prices have eased, Chinese steel mills remain in a precarious position. Rebar prices continued their freefall in March; May futures lost over $15/ton and October futures lost nearly $22/ton, bringing year-to-date losses in these contracts to about $50/ton and $55/ton, respectively. As is often the case, China’s commit-ment to clearing out overproduction and the extent of its commitment to subsidizing unprofitable mills will continue to be the major factors in iron ore’s fate. Contribution by Spencer Johnson.

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