Futures

HRC futures: Momentum picking up on HR spot price declines

Written by Jack Marshall


After holding steady for most of January, the hot rolled (HR) index has started to gain some downward momentum. In the last 30 days, it has declined $89 per short ton (st) and is sitting just above $1,000/st.

A steep backwardation in the nearby end of the HR futures curve points to an expectation of an acceleration of the price declines. On Thursday, Feb’24 future settled at $945/st vs. an Apr’24 settle at $811/st, a healthy $134 discount.

One month ago that discount, based on Jan. 10  settles, was just $96/st.

Also worth noting, the latest Apr’24 HR settlement is still just over a $100/st over the Aug-Sep’23 index low of $702/st. Technical support will provide some resistance, but real demand and actual inventory need will determine the trend.

The pickup in momentum could be a sign transaction volumes are increasing as price discounting by mills of HR helps move inventory. Steep interest rates, which are unlikely to soften before the next quarter, appear to have suppressed physical volumes as service centers manage higher financing costs and less leverage. Imports likely also will help accelerate discounts. The April-to-December 2024 futures price curve is sitting in the mid-$830/st range as an average.

Prime busheling (BUS) scrap, which had surprised in January with settle at $518.10—only off slightly from December—appears poised to decline between $35 and $45 per gross ton (gt) for February. The balance of 2024 months for BUS fall between $455 and $475/gt based on Thursday’s settlement, with March-May trading at $460 for some volumes. The Feb-through-June’24 curve has dropped about an average of $20/gt, with the latter half giving up less than $10/gt.

 

Jakc Marshall, SMU Contrubutor

Jack Marshall

Read more from Jack Marshall

Latest in Futures

HRC futures: ‘Normalcy’ not seen on near-term horizon

Over my years of observing the steel market, there's been a recurring belief that current market disruptions in either the physical spot market or steel futures are temporary anomalies, destined to fade, and that normalcy will soon return. However, the events of the first few weeks of 2024 served as a stark reminder that this expectation seldom materializes, and that the US steel market is still the most volatile steel market in the world.

HRC futures: Understanding and addressing HRC basis risk

It’s no secret that HRC futures have been particularly volatile over the past several years. The most recent instance was the outsized break in the March futures contract early this week. For companies procuring raw material in anticipation of higher prices or even to get ahead on future purchase orders from customers, understanding the relative price of that raw material versus the hot-rolled coil futures curve is important.

HRC futures: A flock of canaries in the mine

Much has happened since we last met on Jan. 4. Cleveland-Cliffs announced a price increase on Jan. 3, lifting the futures market in the morning only for it to finish the day $20-$30 per short ton (st) below those morning highs. On Jan. 4, the futures curve was down another $10-$28/st. And in my column for SMU that evening, I asked a question: Would those aggressive sellers be met with a short-squeeze forcing them to cover, or had the market peaked with the negative price action to start the year the proverbial canary in the coal mine?