Futures
Futures: The Slow Erosion of HR Prices
Written by Jack Marshall
May 11, 2023
After surprising the market watchers of HR futures in the first week of May, the index finally gave back $40 per short ton (ST) in the second week, coming in just shy of $1,130/ST.
Interestingly, the May futures settlement was almost unchanged from April 10 . While the market may be in a hurry for price corrections, the indexes prove they tend to lag.
Reports of scarce physical activity, along with declining lead time deliveries from mills, seem to have increased bearish sentiment. Softness in global steel demand, as well as increasing imports, have only added to concerns that prices could slide further. In spite of the steeply backwardated futures curve, hedging participants are still wary that prices could slide even further, which appears to be muting volumes. In addition, the steep decline in prices between futures months is adding to concerns for service centers of being stuck with expensive contract tons should the velocity of the price decline increase. Lower spot volumes tend to slow the index prices declines.
In the last month, futures volumes have been steady with just under 20,500 lots traded. Open Interest finished April just above 30,200 lots. We have seen a slight erosion in activity as participants remain on the sidelines due to reduced physical activity. Over the last month, settlement prices have eroded somewhat: Q3’23 prices have on average declined by about $55/ST, Q4’23 prices have on average declined by about $45/ST, and 1H’24 quarterly prices have eased roughly $25/ST.
Receding global demand for scrap left export prices considerably lower with 80/20 in the $375/ton range. While the market was anticipating a $25-30 price decline in BUS for May.
The market demand for prime scrap kept BUS above $550/ST for May’23 value, less than a $16/GT decline. Will the scheduled summer model changeovers at the auto manufacturers be enough to offset the increased EAF capacity that is coming on-line? The jury is still out on that. BUS prices have been proving to be very sticky.
Editor’s note: Want to learn more about steel futures? Registration is open for SMU’s Introduction to Steel Hedging: Managing Price Risk Workshop. It will be held on April 26 in Chicago. Learn more and register here.
By Jack Marshall of Crunch Risk LLC
Jack Marshall
Read more from Jack MarshallLatest in Futures
HR futures: Trade case action official – It was already priced in?!
This month’s column on the markets could be a response to the question of last month, “Are the forward curve prices on Aug. 7 high enough to price in trade case risks?" The market’s answer has been a pretty resounding YES so far, I think.
HR futures: Trying to form a bottom
On Aug. 14, the chairman of the world’s largest steel producer, China’s Baowu Steel Group, had some alarming news. He told staff at the firm’s mid-year meeting that conditions in China are like a “harsh winter” that will be “longer, colder and more difficult to endure than expected.”
HR futures: Lack of good news leads futures lower
The front end of CME hot-rolled (HR) coil steel futures contracts had drifted lower when this article was filed on Thursday afternoon. And the back end of 2024 had also come under pressure. Despite staging a late-month rally at the end of July back into the low $700s per short ton (st) range, the lead […]
HR futures: Forward premiums remain substantial. Are they substantial enough?
Another month for hot-rolled (HR) coil, and another disappointing one for the bulls. They are still holding onto hope that the bottom is here and still pointing to an imminent uptick in HR prices.
HR futures: Trend reversal or bear market head fake?
Cleveland-Cliffs and Nucor each raised their respective hot-rolled coil (HRC) prices this week. Since last Wednesday’s settlement, the Midwest HRC futures curve has rallied as much as $63 in the September future.