Hot Rolled Futures: It’s a Buy the Dip Kind of World

Written by David Feldstein

The following article on the hot rolled coil (HRC) futures markets was written by David Feldstein. As the Flack Global Metals 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 Global Metals website www.FlackGlobalMetals.com.

Buy the dips……

That’s been the theme of this article for 2017.  The fundamentals remain stellar. 

Solid uptrends in purchasing manager indexes globally…

US (blue), Eurozone (yellow) and Chinese (red) Manufacturing PMI, April CME Midwest HRC Futures (white)

We’ve seen a major comeback in the energy space over past twelve months and a solid rebound in oil futures the past ten days.

WTI Crude Oil Futures (white), US Crude Oil Production (green) and US Rig Count (red)

There was a giant move higher in Australian coking coal this week.  Last year, it pulled Chinese HRC and iron ore prices up sharply within a few months.  The recent fall in Chinese HRC and ore prices is a concern on the horizon, but if Chinese HRC prices rally back up, well……buy the dips.

Australian Coking Coal (white), Chinese HRC Price (red), Second Month Iron Ore (green) and TSI US Midwest HRC Index (orange)

The chart on the left is the CME Midwest HRC futures curve on January 20th, 2017 (green) and the same curve on January 27th, 2017 (blue) falling abruptly with falling Turkish scrap prices.  Buy the dips?  The chart on the right is the HRC curve on January 27th (green) and February 28th, 2017 (blue).  Yep.

Same idea below.  The curve falls from February 28th until March 31st.  Since then, it has started to rebound.

Strong ISM PMIs, low imports, rebounding energy, long-term upward momentum in construction, strong autos/employment.  Steel buyers are in a crowded trade of rampant skepticism and low inventory levels.  Be contrarian.

LME scrap fell off again last month and rebounded nicely over the past week.  Buy the dips.

April LME Turkish Scrap & Curve

US Midwest HRC indexes hovering around the $660/st level.  Last week, April fell below $640/st and then settled last night at $655.  Who bought that dip?

April CME Midwest HRC Futures & Curve

Iron ore down from its highs.  Iron ore is definitely a tricky one indeed with massive backwardation of 20% by year end, but it’s been strong along with a rebounding Chinese economy.  (FYI, big breakdown of Chinese economy in this week’s week-over-week at flackglobalmetals.com)

April SGX Iron Ore Futures & Curve

Right now the fundamentals for the steel industry are great.  Don’t fight it.  Grab a latte, go to www.flackglobalmetals.com, read the week-over-week report in the industry news section and buy the dips.  It’s what’s been working.  At some point things will change, but for now grab some punch and enjoy the party. 

“Life moves pretty fast.  If you don’t stop and take a look around once in a while, you could miss it.”

David Feldstein, SMU Contributor

David Feldstein

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