Futures
HR futures: Trade case action official - It was already priced in?!
Written by Spencer Johnson
September 6, 2024
This month’s column on the markets could be a response to the question of last month, “Are the forward curve prices on Aug. 7 high enough to price in trade case risks?” The market’s answer has been a pretty resounding YES so far, I think. If you look at the curve month over month, the weaker spot price has been a much bigger factor in the pricing than the recent trade case. The risk of that case has been long thought of as a key driver of forward risk and thus contango in the futures curve.
That being said, the news brought us back up to some higher trading ranges, but that is only because buyers in the futures market for Comex HRC on Sept. 5 seemed to have hit the panic button on the initial news of the trade action that was announced on Thursday. Early day it got wild but the buying frenzies faded into the afternoon and we were mostly sideways on average to start the day Friday (at time of writing). The exception is October, which was back up to $728 per short ton (st) vs. $718/st settlement on Thursday. Here is how it looks month on month vs. our previous report a month ago, and this is even accounting for the rally on Thursday;
Future Month | Settlement Price on 9/5/24 | Settlement Price on 8/7/24 | Change |
September HRC | $699.00 | $724.00 | -$25.00 |
October HRC | $718.00 | $744.00 | -$26.00 |
December HRC | $774.00 | $779.00 | -$5.00 |
This is the third straight month in which spot price weakness has been felt both on the index level and the forwards, which overall have come off massively this year. Spot month September futures had a peak this year of $879/st. This itself was a nosedive from the start of the year as September had touched an amazing $1,149/st during late December of last year. With one print down and three to go, even if mills can make a move, we are still likely to average out in the $700-715/st range optimistically, perhaps lower if the index does not respond quickly to mills efforts to get prices up.
Farther forward, going into this month the October low was $723/st back on July 23, so we are trading right around that same level here in September now. (Actually, $723/st is the October bid on CME globex at the time of this writing.) December also is remarkably unchanged from a month ago even with the trade case news no longer a rumor but actually playing out in some ways as we would have expected. It’s now a broad ranging trade action that encompasses USMCA members Mexico and Canada. Additionally, there is a greater possibility of blocking the Nippon play for U.S. Steel deal with recent news from the White House.
It seems like from here we are going to need to see some real follow through on spot price increases before the market is willing to price in much additional premium over the current spot levels. But there was a certain uneasiness on Thursday that really had things crazy for a moment. October was trading above $745/st briefly, and markets were approaching $50/st day-over-day increases in some cases before eventually backing off and settling lower. It was still an extreme intraday move for HRC. Will we see more of that, or will the announcement now being made crystalize some things? Check back next month and we will sort out how it was priced in.
Source: data is from Comex HRC futures settlement prices as published by CME group.
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Spencer Johnson
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