HRC & Bush Futures: Post-March Hangover Sends Futures into Hibernation

CME Hot Rolled Coil Futures Curve $/st

This chart shows the July future in white with daily volume for all futures months in blue and with a five-day average in yellow. The five-day volume average has collapsed to just below 5,500 tons from as high as 66,000 tons on March 9.

July CME HRC Future $/st w Volume & 5-Day Avg

Open interest has also fallen dramatically. This chart is of the rolling second month HRC future with open interest in red, and a 22-day moving average in yellow shows open interest falling to its lowest level of 480,000 tons following last week’s expiration of the May futures contract.

Rolling 2nd Month CME Hot Rolled Coil Future $/st & Open Interest

The sharp drop off in price movement has resulted in a steep drop for HRC future’s volatility. This annualized measure of price movement is typically computed in 30-, 60-, 90-day or longer periods. And as you can see, the 30-day peaked a month after volume collapsed while the 60-day crashed starting two months after volume sank. If the market continues to be rangebound with little movement as it has over the past two weeks, expect volatility to continue to drop like a rock. Volatility is the key component in option pricing like helium in balloon. All things being equal, increased volatility inflates option prices while decreased volatility deflates them.

July CME HRC Future 30-Day and 60-Day Historical Annualized Volatility

The same abrupt halt in volatility is happening in the busheling futures market with July’s $25 decline the largest on the downside and no month gaining more than $5 on the upside.

CME Busheling Futures Curve $/lt

The busheling market is seeing the same collapse in volume with its five-day average below 800 tons per day for the fifth straight day today.

Rolling Front Month CME Busheling Future $/lt w Volume & 5-Day Avg.

The one difference is a slight uptick in open interest seen in the busheling futures market.

Rolling 2nd Month CME Busheling Future $/lt & Open Interest

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