HRC Futures: Volatility Leads Market Participants to Seek Flexibility

In the past two months, the US Midwest Hot Rolled Coil (HRC) futures market has experienced significant fluctuations. The initial decline in prices led to destocking and low inventory levels. However, recent price increase announcements by mills halted the downward trend and even reversed it temporarily. The futures curve reflected short-term optimism but indicated that the market viewed the price hikes as a demand-pulling tactic rather than a long-lasting trend reversal as shown in the column by Flack Global Metals’ Daniel Doderer in SMU on June 29. The market has been volatile, influenced by factors such as elevated physical lead times, low consumer inventories, reshoring manufacturing, and fluctuating interest rates.

The recent activity suggests a pause in spot prices, with mills attempting to hold prices steady despite soft manufacturing data as shown in the column by Jack Marshall of Crunch Risk LLC in SMU on July 6. Import competition and selling interest from importers have impacted the market. The futures curve for Q3’23 HR average price reflects a slight increase, but the rest of the curve remains relatively flat. The market is likely to remain choppy and volatile in the coming weeks before a clearer direction emerges. The recent rally in August futures, accompanied by decreasing open interest, raises questions about the sustainability and commercial interest in the market, as shown in the July 13 column in SMU by David Feldstein, Rock Trading Advisors. The future trajectory of HRC prices is uncertain, and participants should approach the market with caution, as it has proven to be unpredictable and challenging to navigate.