Futures
Hot Rolled Futures: HR, Scrap Prices Continue Slow Decline
Written by Jack Marshall
June 6, 2019
The following article on the hot rolled coil (HRC) steel and financial futures markets was written by Jack Marshall of Crunch Risk LLC. Here is how Jack saw trading over the past week:
Steel
HR spot prices continue to trickle lower. June indexes have started out under $600/ST with Jun’19 HR futures trading in the low $580/ST range. Summer doldrums have the Q3’19 HR futures prices trading in the low $570’s. However, the HR curve is in contango from Q3’19 out into the future. The Q3’19 HR futures price versus the Q4’19 HR futures price has remained fairly steady at about a $23 contango since the end of May ($578 Q3’19 vs $601 Q4’19). The Q4’19 HR futures price versus the Q1’20 HR futures price has also remained fairly steady during that period at about $13 contango ($601 Q4’19 vs $614 Q1’20). However, we have seen some flattening of the contango in Q1’20 versus Q2’20. From (9 contango to 2 contango). With Jul’19 HR valued at $562/ST and Jun’20 at $620/ST, the curve is still pointing towards a price rebound. However, there has been thus far tepid interest to buy HR futures along the curve, which could be a sign folks still will ride the prices lower. So far, the indexes appear to be lagging the prices where available spot steel is purported to be trading. Wide price ranges in the indexes along with wide daily prices within given futures months suggests a lack of clear directional bias.
Short lead times and concern over too much capacity are keeping folks on the sidelines, along with the latest declines in the price of scrap.
Below is a graph showing the history of the CME Group hot rolled futures forward curve. You will need to view the graph on our website to use its interactive features; you can do so by clicking here. If you need assistance with either logging in or navigating the website, please contact us at info@SteelMarketUpdate.com.
Scrap
The market is looking for a $30/GT drop in BUS spot prices from last month’s $312/GT level. BUS futures price curve has gone from a relatively flat curve to an upward sloping curve as the nearby months have declined an average of $30/GT. Jul’19 has seen a drop from $320/GT to the latest offers below $284/GT. The softer scrap prices are helping to soften HR price expectations.
Shred prices are expected to be in the low to mid $260 range reflecting a similar decline to prime scrap. Continued excess supply due to logistics and weather is hurting shred prices. Also, weak European HR prices are limiting offshore scrap demand.
Below is another graph showing the history of the CME Group busheling scrap futures forward curve. You will need to view the graph on our website to use its interactive features; you can do so by clicking here.
We have started tracking USSQ shredded scrap futures, shown below. Once we have built a sizable database, we will add this data to our website.
Jack Marshall
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