Hot Rolled Futures Find Support after Sell Off

Written by Bradley Clark

After the recent sell off of HRC futures, it appears the market has reached a critical support level with Cal 15 trading at $620.  Near months aren’t much higher with Nov14 trading around $623 and Dec14 at $621.  The selloff came as concerns over the global economy came to light in recent weeks.  The International Monetary Fund lowered their forecast for global economic growth down to 3.3 percent from 3.7 percent earlier this year.  Additionally, weak demand from China has been a continuing concern as the rapidly growing economy seems to be slowing down.

However, HRC futures seem a bit oversold relative to the fundamentals in the physical market.  Q1 15, now trading at $620, was trading at $638 just over two weeks ago.  While the physical market has seen softening of prices recently, it is unlikely a dramatic price reduction will occur since pricing power favors steel mills as consolidation of the industry continues.  Four companies (ArcelorMittal, US Steel, Nucor, and AK Steel) now control over three-fourths of HRC production in the US and Canada.  With the current spot market around $650 and Cal 15 reaching a critical support level this week, it is likely that HRC futures will trade higher in the near to medium term.  

Volume showed a lot of activity this week with 25,000 tons trading so far this week.

Below is an interactive graphic depicting the latest hot rolled futures forward curve with a comparison to four weeks ago. The graph can only been seen and interacted with when you are logged into the website and reading this article online (otherwise it just appears to be an empty space on your screen).

{amchart id=”73″ HRC Futures Forward Curve}

Scrap prices remain lower this week as a stronger dollar makes scrap export less competitive in the global market.  Decline in iron ore prices this year have also hurt scrap prices with Mills seeking cheaper input costs.

Below is another interactive graphic, but for the latest busheling scrap forward curve in comparison to the same curve from four weeks ago.

{amchart id=”74″ BUS Futures Forward Curve}

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