Hot Rolled Futures: What a New Year Brings

Written by Andre Marshall

Our report on the futures markets comes to us from Andre Marshall, CEO of Crunch Risk, LLC and the instructor for our Managing Price Risk I and II workshops. Andre will discuss the hot rolled coil futures (HRC) trading done over the past few days as well as trading of Busheling scrap (BUS) and iron ore. First, however, Mr. Marshall reviews the financial markets and copper trading:

Financial Markets:

In S&P 500, we have had a recent drop, which terminated on Tuesday at 1984.25 March futures. We are now last 2053 after big up day today. More of the same in the equities markets, upward trend with moments of hysteria as the U.S. data looks good and the world frankly looks a bit scary. We’re probably headed toward taking out the highs of 2089 and then making fresh highs.

In Copper we are depressed, like in a lot of commodities, last $2.77/lb. on the March future. We have a continuation of the downward trend the last 6 months or more. The last big drop was the 5th when we lost another 8 cents per pound. We have been range-bound since bet. $2.75/lb and $2.775/lb.

We all know the story about Crude. How could you not?! “Egads” is I think the proverbial sigh. We are last $49.40/bbl (barrel) zone on the March future below the important psychological $50/bbl mark. We have settled into a $47.50/bbl-$49.90/bbl trading range, probably headed lower still now that we’ve broken $50/bbl.. Be wary however of markets that get too bearish.

HRC Steel:

So, last I traded Q1 and Q2 yesterday at $597/ST (short ton), and before that I traded Q2 and 1H @ $602/ST the first week of the year, and before that May/Oct @ $605/ST the last days of 2014. There clearly is downward pressure on the 1H (1st Half 2015) period which is following spot downward.

For 2H, there are few sellers, and, despite CME settlements, the market is $610-615/ST range, and Calendar year ’16 more like $625-630 range. Buyers have yet to look at the back end very seriously, even 2H of late. As the Domestic to Import spot spread narrows, I’m expecting the contango to increase on 2H ’15 and into Q1.  As for whether the front end comes off further, or the back end gets pushed up, I’m not sure although I’m betting on upward pressure on the back end for sure.

The spot picture will depend on scrap levels although with a metal spread still $220-240 difference [spread between scrap and HRC pricing]., it’s still pretty healthy for minis to lower prices further for market share.

The CRU went up $6/ST on Wed. to $597/ST, which surprised everyone. Excepted wisdom would be that low volume spot deals transacted at higher levels in the range pulled the weighting up. However, there were reports of some lead times pushing out by as much as a week in that period. So it looks like there were some late comers booking deals as well.  The problem this industry has is inventory. Everyone just has way too much of it.

Below is an interactive graph of the HRC Futures Forward Curve. The graph can only be seen when reading this article while logged into our Steel Market Update website:

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

Iron Ore:

The $1 trillion project announcement by Chinese officials Monday caused a round of short-covering in IO futures (iron ore futures). However this hasn’t quelled bearish concerns about IO’s forecast or its forward curve. Almost no spot cargos have transacted in the short-cover period which doesn’t help the confidence levels either. Here similar to crude in that it’s another global index market that folks are watching carefully for signs of improvement. We are last $70/MT (metric ton) plus on the index and in pause mode before we decide lower or higher again. Market is backwardated, let’s call Q4 ’15 either side of $67/MT, and Calendar ’16 is either side of $66/MT.


Scrap has been reported strong by the publications, but reality on ground is quite different. Where Shred was transacting early $30-35 up in some zones and Bush up $15-25 in some zones, it looks like MW bush (read Chicago/Detroit market) will probably not even go up at all as the market has tanked in the last few days. Mills just had too much inventory and not enough orders to compensate further buys.

Surprisingly the Turks lifted (bought) a couple of cargos at $319/MT zone last week of mixed HMS 80/20 mix of material off East Coast. This market is still about $19/MT above its lows a few weeks back, which is attributed to the winter buys in MENA (Middle East). This is surprising in that Russian billet is so cheap and Turk mills can buy it better (cheaper) than producing from scrap, particularly with such strong US dollar. Maybe early chatter of an upward domestic market pulled them in. Nice sales.

Another one of those pesky interactive graphs is below with the BUS (CME Busheling Scrap or BUS) forward curve.

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

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