Futures: HR Prices Continuing Sluggish Reversion to the Mean

Go figure, in the last month, HR spot has continued to decline. The index tied to CME HR futures has given up $140/ST ($1,130/ST to $990/ST). A look at the fundamentals would appear to support the latest market direction. The list includes declining steelmaking component prices (zinc, coking coal, iron ore and scrap), a sharply lower May Chicago PMI—down for the seventh consecutive month (40.4)—another down month for ISM Manufacturing in May (46.9), and a tepid Fed Beige Book.

Of particular concern from May ISM was the new order component, which contracted at a faster rate and the continuing contraction of the backlog orders component. The data seem to bear out Q1 concerns that the demand in the middle of 2023 would contract due to Federal Reserve tightening and reduced liquidity. While automotive demand might be a bright spot year to date, along with a slow uptake on steel imports due to fear of continued price declines, the HR curve still is pricing in a further $150-$200/ST decline.

Jack Marshall

Jack Marshall has over 30 years of experience trading and marketing financial futures and swaps, including currencies. Before joining Crunch Risk in 2012, Marshall was responsible for Forex Origination for BofA Merrill Lynch in their Chicago office. For Crunch Risk, he focuses on Ferrous scrap futures and helps manage client communications. Marshall is a regular contributor to the Steel Market Update newsletter covering topics including steel and steel scrap futures. He is NFA registered Associated Person and holds a Series 3 license. Marshall can be reached at jack.marshall@crunchrisk.com.