Futures
Hot Rolled Futures: Faulty Compass Leaves Market Participants Sidelined
Written by Jack Marshall
September 15, 2022
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
This futures market has no direction currently, summing up the sentiment in hot rolled as of late. After a slight index retrace recently, the index is sideways, hovering just shy of $800 per ton. Inflationary headwinds continue to stymie the HR market, as physical as well as futures activity have been subdued. Open interest has been anchored near 20,000 contracts. Current interests have moved further out the forward curve into 2023 as longer term hedgers place more modest HR hedges.
The HR market is experiencing reduced trading volumes from price speculators as the price volatility has dropped quite a bit in the last few weeks. Recent mill price increase announcements so far have not significantly affected the futures curve prices. If anything, the opposite is true.
If we look at Aug. 15 HR settlements versus Sept. 14 settlements, we can see some softness in the HR markets:
Q4 2022: $875 vs. $823—down $52
Q1 2023: $903 vs. $844—down $59
Q2 2023: $908 vs. $850—down $58
Q3 2023: $906 vs. $868—down $38
Q4 2023: $906 vs. $880—down $26
Participants are waiting for HR initial margins to reflect reduced price volatility.
Below is a graph showing the history of the CME Group HR 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
BUS futures have continued to slide. Since the April 2022 BUS price peak at $779 per gross ton, futures have retraced $355/gross ton to the latest $424/gross ton for September BUS settlement.
The BUS curve in the last month has shifted from almost a flat curve to a slightly upward sloping curve into the middle of 2023 and then tapers a bit lower.
Full year 2023 BUS is hovering near $450–460/gross ton. Recent softness in the 80/20 export market has signaled concern that October BUS will again be softer especially if HR drifts lower.
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.
By Jack Marshall of Crunch Risk LLC
Jack Marshall
Read more from Jack MarshallLatest in Futures
HR futures: Nucor’s price cut makes its mark on steel markets
When we were asked to provide some additional commentary to SMU about the futures markets for flat rolled, our only reluctance to contribute was rooted merely in the fact that SMU (1) already offers an excellent array of authors on this topic and (2) a concern regarding what new ground could be covered that hasn’t already been discussed to death on this issue. Thankfully, however, Nucor has offered up something we can describe, without hyperbole, as simply revolutionary for spot pricing in flat rolled - a development that we simply could not resist commenting on with respect to its probable impacts on the futures market.
HRC futures: Still waiting for clarity
“One thing we know for certain, however, is that when we write our next column, things will have certainly shaken loose.” – Daniel Doderer, April 4, 2024. Above is a good reminder that whenever someone is “certain” of anything, you should probably look at that line of thinking with a healthy dose of skepticism.
HR futures: Activity muted amid quiet spot market
Week-over-week trading activity in US steel derivatives markets was relatively muted, with prices maintaining their downward direction since the beginning of the month. Bids have materialized at the lower end of this range in the May, as the nearby backwardation continues to roll on - just as we saw with April being a premium over May.
HRC futures: Consolidation ahead of a big move?
It has been a crazy 2024 so far for hot-rolled coil (HRC) futures!!!
HRC futures: A lot of change lurks beneath the surface
It has been six weeks since Flack Global Metals wrote our last SMU column, and if you simply look at the futures curve from then (blue) until now (white), you could argue that very little has changed.