HRC Futures: Hedgers Getting Off Sidelines

Much forecast uncertainty has kept hedgers on the sidelines until recently. HR volumes have picked up in the last week or so suggesting more folks are getting off the fence. Seems the participants sentiment is shifting as some concern about lower HR inventories and simultaneous production cuts, along with higher asking prices, could give HR prices some support.

In the last 12 trading days, daily trading volumes have averaged about 40,000 ST, with open interest moving up. Open interest as of the end of September was about 24,000 contracts, up from the prior month. 

So the question is will the lower available supply be enough to offset actual demand going into Q4. For reference, the settlement change for Q4’23 from end-August to end-September is +$43/ST,  but with some slippage in the first few trading days of October. Q1’24 HR settlements have changed by just shy of +$50/ST for the average settlements, up through today’s preliminary settlement. Cal’24 average settlement has risen $24/ST since the end of August.

Also of note, with the move up we have had increased hot rolled options contract interests. The 700 and 650 put strikes in the Q4’23 months have been the focus. There has been some chatter about a bottom forming in HR. But given all the uncertainty going into Q4’23, that might be a bit premature.

Timing is everything in BUS. Getting that right is difficult. Latest chatter had the Oct’23 BUS declining $10-20 per gross ton, which has been reflected in the $390/GT settlement in the Oct’23 future.

The BUS curve in Cal’24 remains pretty flat, albeit at slightly higher levels than at the end of August. The export scrap market has been a bit thin of late, with the latest 80/20 cargoes going for about $370/ton. Early word circulating is that shred will be down about $20/ton out of Detroit, with primes flat. Look for the composite prime scrap index to be down this month.

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