Hot Rolled Futures: Hay Caramba!

Commodities continue to form an upward trend. Like crude, which is last just below $45/bbl. on the June future, and is up 20% from a month ago and 42% from its lows in February. While in Copper we have the July future at $2.15/lb., which is 8% up from its lows in February. We also see similar trends in ferrous markets as prices have rebounded from overly depressed oversold conditions. While experiencing these rallies it’s hard to see where they might end up, particularly in a world of trade regulations and barriers. Really $600/ST steel?!! That said, despite what causes it, any exaggeration to the upside will also be unsustainable, and eventually, will also retrace back to a mean reversion level. Now, if I only knew when and from what level. Hmm.

One final note to point out is the recent trades we have executed in ferrous scrap futures, specifically CME BUS (busheling) futures. Jack has been working behind the scenes to keep interest in futures in scrap going and we have all along been encouraged by the conversations and interest in the space despite the lack of trades. So we are very pleased to see that the recent rally in steel has spilled over into the scrap futures space, and we see a greater level of interest and participation in  scrap futures both in domestic busheling and CFR Turkey HMS 80/20.

Saludos Cordiales!

Hot Rolled Coil (HRC):

What a difference the last two weeks have made in Hot Rolled.  Hot Rolled futures prices (HRC) have continued to push higher on the back of higher global HR prices, longer lead times and higher scrap prices.

The HR spot month future value @ $560/ST reflects a healthy gain of $74 over April settlement ($486).  Perhaps the index will finally catch the futures prices.  HRC Q3’16 and Q4’16 futures have also experienced healthy gains over the last two weeks as HR Q3’16 has risen $35/Short Ton (ST) as it traded between $565/ST and $600/ST, and HR Q4’16 has risen $15/ST as it traded between $547/ST and $562/ST.

HRC Cal’17 has also been active the last 2 weeks trading from $507/ST to $517/ST.  The follow on activity was more focused on Q1’17 and Q2’17 with $534/ST and $529/ST trading.  Current Cal’17 market is $530/$550.  HRC listed trading volume has been healthy.  In the last two weeks over 86,000 ST of HR futures have traded on the CME, with healthy amounts also trading OTC. HRC futures Open Interest stands at 438,900 short tons.

Latest HR settles:

spot mo.    $560
Q3’16       $595
Q4’16       $562
Q1’17       $550
Q2’17       $529

Below is a graphic of the HRC Futures Forward Curve. The interactive capabilities of the graph can only be used in Steel Market Update website here. If you have any issues logging in or navigating the website please contact us at info@steelmarketupdate.com or (800) 432 3475.

Scrap

Tight scrap markets in Europe and high priced billet have kept the CFR Turkish scrap prices moving higher.  Last export scrap shipments reported with price of $326/MT up $12 from the previous day.  Last market selling interests in FSF (CME CFR Turkey scrap futures) Q3’16 were at $290/MT and in Q4’16 at $280/MT.

Busheling Scrap futures (BUS) are also continuing their move higher on the back of rising HR price announcements and continuing supply constraints.  This week in 2H’16 Midwest BUS futures trades ranged from $260 per gross ton (GT) to $285/GT.

We also saw interest in 1H’17 which was offered between $260 and $270 but has since been pulled. The increased interest in BUS futures is due to the widening metal margin spread that has resulted from the faster price increases in HR and the slower price increases in BUS.  The spread has moved out to between $275-$300.  Taking a look at John’s SMU pricing data you can see that the spread ranged between $160-$235 in 2015.

Latest BUS settles:

Spot mo.  $285
Q3’16     $290
Q4’16     $285

Another graphic is below, but of the BUS Futures Forward Curve.