Hot Rolled Futures: Shift into Further Backwardation as Commodity Complex Hit Hard

The following article discussing the global ferrous derivatives markets was written by David Feldstein. As an independent steel market analyst, advisor and trader, we believe he provides insightful commentary and trading ideas to our readers. Note that Steel Market Update does not take any positions on HRC or scrap trading, and any recommendations or comments made by David Feldstein are his opinions and not those of SMU or the CRU Group. We recommend that anyone interested in trading steel futures enlist the help of a licensed broker or bank.

Don’t get me started on the benefits of implementing a hedging strategy into your steel or manufacturing business, but the degree to which you hedge your risk is a blend of factors including your forecast for steel and scrap price direction. No matter how you adjust the degree of your hedge, you always want to have some amount hedged, even for the most bullish of forecasts. Why? Uncertainty or in the parlance of our times, the black swan. Coronavirus is right up there with the best examples of a black swan*. There is a trading maxim that commodities take the stairs up and the elevator shaft down. Case in point, WTI crude oil (left chart) and CME copper (right chart) in the charts below where months of gains were evaporated in a few trading days. Shoot first, aim later.