Futures
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Hot Rolled Futures: Hot Lazy Summer
Written by Jack Marshall
July 16, 2020
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
Declining HR spot steepens the HR futures curve even as it shifts lower, but the light is just around the corner.
HR futures markets have seen a drop-off in activity while participants take a wait-and-see approach to putting on new HR futures hedges due to the HR spot price trending lower over the last month after peaking at $510/ST in mid June. The current HR spot hovers around $471/ST. The softer than expected demand and concern this will continue has shifted sentiment and left the HR futures curve lower and a bit steeper than just two weeks back. The declining prices in the nearby futures months have led to some profit-taking by market shorts and a thinning of potential selling interests. Both of which have also led to lower trading volumes. The end of July should bring some more clarity for manufacturing businesses as the Fed unemployment subsidy will sunset, which could lead to more consistent business operation as employment returns to more normal conditions. Futures pricing in 1H’21 reflects improving price expectations with the latest values near $530/ST.
The current HR futures curve out 12 months is about a $54/ST contango (Jul’20 $476/ST, Jun’21 $530/ST), with the nearby month prices having declined the most. Q3’20 and Q4’20 HR futures have dropped about $19/ST from the end of June versus Q1’21 and Q2’21 having dropped about $7/ST each since the end of June. Some of this price weakness can be attributed to the steep monthly decline in the BUS futures settlement for July, which was down by over $40/GT ($278/GT).
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 early chatter around BUS suggests continued weakness as folks look for an additional $20/GT decline. Last month’s BUS price decline left a few folks surprised. Continued uncertainty surrounding business demand due to Covid-19 and the still low 56 percent capacity utilization rates being quoted for HR production could support the view. However, robust export prices for 80/20 partly due to a weak U.S. dollar could help buoy SHR and BUS prices in the coming month. We have seen a pickup in market inquiries for the BUS. Nearby BUS futures are trading just shy of $280/GT with about a $20-30 contango out to January 2021.
Below is another graph showing the history of the CME Group busheling scrap futures forward curve. To use its interactive features, view the graph on our website by clicking here.
![Jakc Marshall, SMU Contrubutor](https://www.steelmarketupdate.com/wp-content/uploads/sites/2/2023/04/jack-marshall-150x150.jpeg)
Jack Marshall
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HR futures: Shifting risk profiles, emerging opportunities
Summer is here, and a familiar sentiment has hit the hot-rolled coil (HRC) futures market. Prices continue to decline in both the spot market and the futures market, with expectations of sub-$800 prices for the remainder of the year.
![](https://www.steelmarketupdate.com/wp-content/uploads/sites/2/2023/09/HRC-Futures.png)
HR futures complex slips from June
The CME steel futures complex saw a slight decrease in activity from levels seen at the end of June. This has coincided with a notable decline in flat prices for the nearby futures contract, now August HRC, which is lower by $81 per short ton (st) since last writing on June 13. It settled at $672/st on July 17.
![](https://www.steelmarketupdate.com/wp-content/uploads/sites/2/2023/09/HRC-Futures.png)
HR futures: Bottom to prices?
A month ago, when we last presented this column, there was a surprising amount of optimism in the presumably imminent reversal of the downtrend in hot-rolled steel prices in the second half of this year.
![](https://www.steelmarketupdate.com/wp-content/uploads/sites/2/2023/09/HRC-Futures.png)
HR futures: ‘Gimme Shelter’
This chart of the rolling second-month CME hot-rolled coil (HRC) future dating back to the start of 2022 has been as volatile as a herd of “Wild Horses.”
![](https://www.steelmarketupdate.com/wp-content/uploads/sites/2/2023/09/HRC-Futures.png)
HR futures: Market changes gears
For the first time in weeks, activity in the futures market broke out of the recent “front grinds lower” pattern to provide new insight into the dynamics of the steel industry.