Futures
Futures: Will Holding Pattern in HR Tags Stick Out Summer Lull?
Written by Jack Marshall
July 6, 2023
A short week with the July 4th Holiday kind of sums up recent HR futures activity. Subdued spot activity and not much change from the previous weeks’ indexes leaves the market time to roll exposures.
The recent price increases appear to have given spot prices a pause. Heading into the cyclical summer soft spot, mills are trying to hold the line on prices. Some of the indexes reflect some price increases. (Spot Index $880/ST roughly.) The jury is still out as to whether there is enough demand to move prices higher on the back of soft manufacturing data. But given fairly tight inventory control at the service center level, any unexpected outages could be supportive of the current push to move the spot index prices higher, especially for certain regions and grades. The latest front month settlement values Jul’23 HR at $895/ST, up slightly from the latest average of HR indexes. However, lower global HR prices point to strong import competition and an increase in selling interest from importers.
The current futures curve settles for Q3’23 HR average price ($905/ST) reflect a $65/ST bump higher in the average settlement price since the June 7 settles. The rest of the futures curve is basically flat, reflecting only a $15 lower average price as compared to the Q3’23 average price. It is too early to tell what futures activity for July will be following a fairly active June, which saw almost 33,000 contracts trade and open interest peak at roughly 28,500 contracts, a slight decline from May.
Early futures indications for July suggest another small price decline as latest offers for Jul’23 BUS reach $470/GT, which suggests almost a $25/GT drop. Interestingly, the front of the curve has dropped enough to flatten out the curve for the next 12 months. The prices for the back end of the futures curve are barely changed as settles averaged out to roughly $465/GT. The shape of the curve represents an opportunity as the metallics prices rarely stay flat for long. The current metal margin reflects an $80/ton backwardation from Q3’23 to Q4’23 dropping from roughly $440 to $360/ton. Even with the anticipated decline, that still represents a healthy margin when compared to the historic average.
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.