Hot Rolled Futures: Calm Before the Storm

Written by David Feldstein

The following article on the hot rolled coil (HRC), busheling scrap (BUS), and financial futures markets was written by David Feldstein. As Flack Steel’s director of risk management, Dave is an active participant in the hot rolled coil (HRC) futures market and we believe he will provide insightful commentary and trading ideas to our readers. Besides writing Futures articles for Steel Market Update, Dave produces articles that our readers may find interesting under the heading “The Feldstein” on the Flack Steel website www.FlackSteel.com.

The flat US Midwest HRC futures curves drifted slightly lower, settling last night around $495/st.  The futures market traded lightly last week with buyers few and far between.  Only 7,840 tons traded between 9/22 and 9/28.  Open interest stands at 344,800 short tons.

The HRC futures market is mired in low volatility. The announcements of the most recent trade case against Vietnam/China, recapitalization of Essar Algoma and OPEC’s production cut have failed to spark any movement in the curve.  However, as you can see in the left chart above, while the curve periodically flattens, it’s like a spring coil waiting to pop.  HRC futures are one of the most volatile commodities on earth and tend to trend for many weeks at a time.  Looking at the HRC futures settlements above, the uptrend from the bottom in November, 2015 is being approached and, if broken through, could be an indication of another continued move lower as seen in 2015.

In other news, Worthington Industries announced better than expected earnings yesterday that included a $4m hedging gain. Clearly, HRC futures greatly helped their business weather this year’s crazy market.  Is your business using futures to help mitigate risk?

David Feldstein, SMU Contributor

David Feldstein

Read more from David Feldstein

Latest in Futures

HRC futures: ‘Normalcy’ not seen on near-term horizon

Over my years of observing the steel market, there's been a recurring belief that current market disruptions in either the physical spot market or steel futures are temporary anomalies, destined to fade, and that normalcy will soon return. However, the events of the first few weeks of 2024 served as a stark reminder that this expectation seldom materializes, and that the US steel market is still the most volatile steel market in the world.

HRC futures: Understanding and addressing HRC basis risk

It’s no secret that HRC futures have been particularly volatile over the past several years. The most recent instance was the outsized break in the March futures contract early this week. For companies procuring raw material in anticipation of higher prices or even to get ahead on future purchase orders from customers, understanding the relative price of that raw material versus the hot-rolled coil futures curve is important.

HRC futures: A flock of canaries in the mine

Much has happened since we last met on Jan. 4. Cleveland-Cliffs announced a price increase on Jan. 3, lifting the futures market in the morning only for it to finish the day $20-$30 per short ton (st) below those morning highs. On Jan. 4, the futures curve was down another $10-$28/st. And in my column for SMU that evening, I asked a question: Would those aggressive sellers be met with a short-squeeze forcing them to cover, or had the market peaked with the negative price action to start the year the proverbial canary in the coal mine?