Hot-Rolled Futures: A Tale of Uncertainty and Caution

SMU contributor Gaurav Chhibbar is a partner at Metal Edge Partners, a firm engaged in Risk Management and Strategic Advisory. In this role, he and his firm design and execute risk management strategies for clients along with providing process and analytical support. In Gaurav’s previous role, he was a trader at Cargill spending time in Metal and Freight markets in Singapore before moving to the U.S. You can learn more about Metal Edge at www.metaledgepartners.com. Gaurav can be reached at gaurav@metaledgepartners.com for queries/comments/questions.

Over the past few days, it is possible that many of you have experienced dilemma, concern and doubts about the U.S. steel market and its impending direction. If the trend of the futures market is anything to go by, the confusion is best captured in the derivative arena. Futures’ prices have meaningfully appreciated since early October (blue line). The Q1 2020 prices up until 10 days ago had moved more than $40 in a month. Any trader long Q1 2020 futures at $528 (average Q1 on 10/10) would have made $42/ton on 11/11. Since then, however, the market has seen some renewed pressure. This pressure has largely been attributed to the question asked by many: Are we amidst another dead cat bounce?