Hot Rolled Futures: Treading Water!

Written by Jack Marshall

The following article on the hot rolled coil (HRC), scrap and financial futures markets was written by Jack Marshall of Crunch Risk LLC. Here is how Jack saw trading over the past week:

Hot Rolled

Physical HR prices continue to decline at a steady pace. Spot indexes have declined almost $140/ST since the end of last month. Meanwhile the volumes traded and open interest have been slowing down. Current HR futures open interest stands at just under 28,700 contracts as compared to over 40,000 the end of 2021.

The job of hedgers and traders of steel forecasting demand has gotten more complex as runaway inflation and the central bank response makes calculating probable outcomes more difficult. It appears the latest response to these headwinds has been to watch from the sidelines. This could be partly due to HR futures curve prices returning to pre-war settlement levels from 25 Feb 2022 and shorter lead times. The $900 to $1000/ST price area has proven to be somewhat sticky likely due to continuing global supply chain disruptions and uneven demand from manufacturers. The upshot is that the average price for 2H’22 HR futures sits right around $975/ST. While HR production has been rising slightly the last few weeks, service center activity seems more muted as less customers look to fix prices while they weight the Fed’s response.

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.


BUS futures also have eased lower with the May settle just above $700/GT. Early chatter has prime scrap dropping another $30-50/GT. The latest Jun’22 BUS futures have traded in the mid-$650 range, and Q3’22 BUS is trading at $620/GT. While HR has declined, BUS has risen slightly since the end of last month. BUS settlements are on average about $30/GT higher.

Since the beginning of May, the differential between HR and BUS has narrowed (metal margin). Based on settles, 2H’22 average HR-BUS has narrowed $167/ton ($525 to $357). This spread peaked back in September 2021 at $1,333/ton. Margins are tightening back up. With new EAF demand coming on line, how will prices be impacted in a market coping with continuing global supply disruptions due to Covid and the war between two significant suppliers of metallics, recent scrap consolidation driven by vertical integration, and shifting technical innovations with regard to melt mixes?

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.

Jakc Marshall, SMU Contrubutor

Jack Marshall

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