HR Futures: What’s next for HRC and busheling prices?

Since the publication of our last market update on Dec. 10, several notable developments have shaped the landscape. A new president has been sworn in, headlines continue to stir up concerns around tariffs, and both Nucor and Cleveland-Cliffs have announced new offer levels.

Additionally, the launch of the CME Busheling (BCH) contract, based in Chicago, adds a fresh layer to the market. How have these factors impacted HR futures? Despite the expansion in contango, the market has largely remained rangebound throughout the period.

Looking at the historical curve changes from Dec. to Feb 3, there has been a modest shift, with a delta of $50 per short ton (st). This reflects a rate of change of $25/st per month, equating to a 3.3% change per month when considering M1 futures prices.

While one might expect more substantial fluctuations in times of heightened market stress – especially with tariff headlines in the mix – the HRC market has yet to see significant volatility. The underlying HRC Index has remained below $700/st, aside from the potential print expected this Wednesday.

Absent major price action, especially outside of trades from H2’25, the market is still seeking a clear catalyst. However, it’s important to note that futures markets are quick to react to new data points, and a shift could occur with little notice.

CME HRC commodity curve structure change Dec. 10, 2024. to Feb. 3, 2025

Source: Bloomberg

One significant factor driving the strength at the back end of the curve is Feb.’25 scrap strength, a result of winter weather conditions and limited mill flows. Prime scrap for Jan.’25 rose approximately $20/st. Feb.’25 physical trades are in the midst of negotiations which basis price action in BUS & BCH indicate further strength.

Tariffs remain a key focus, but as yet, there have been no significant price movements in the physical market. Cleveland-Cliffs’ offer level remains steady at $800/st, as first published on Dec. 13, while Nucor raised its offer by $15/st on Feb. 3, to $775. Considering the short month of February, a $44/st average on the weekly CRU print will be needed to bring futures and index prices in line.

An interesting development is the relationship between Chicago and Midwest Busheling contracts. Since January 2019, the spread between these contracts has fluctuated between -$7.91 per gross ton (gt) (Chicago over Midwest) to +$40.97/gt (Midwest over Chicago).

Currently, the spread stands at approximately $15/st, with Midwest Busheling priced higher than Chicago futures. This dynamic presents a potential opportunity for market participants to capitalize on shifts in these spreads.

CME BUS/BCH curve structure Feb. 3, 2025

Source: Bloomberg

For those looking to trade futures, the BUS/BCH arbitrage strategy stands out as a potential avenue to express a view on the expansion or contraction of underlying price spreads. Additionally, positioning a BUS/BCH trade against the HRC market could allow participants to capture the mill spread, providing a further layer of potential profitability.

In summary, the market remains relatively quiet. However, there are underlying shifts that present opportunities for those willing to watch the futures pricing closely. The interaction between CME HRC and CME Busheling contracts is likely to evolve further, as traders monitor the changing dynamics of the scrap and tariff landscape. With a few key developments still on the horizon, the market could see significant movement should these factors trigger a more pronounced shift.

CME HRC – CME BCH price curve Feb. 4, 2025e

Source: Bloomberg

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Busheling Scrap Futures

Joshua Toney

Joshua Toney brings nearly a decade of experience across the ferrous supply chain to this column. He began his career in the physical markets with The David J. Joseph Company (a Nucor subsidiary), trading scrap and metallics across the US. He later helped build out the ferrous derivatives desk at Freight Investor Services (FIS) and most recently led North American ferrous derivatives trading at Marex. Today, he is the Principal of Corsair Elements LLC, an independent research and advisory firm focused on ferrous market intelligence and risk management strategies. His background spans physical and derivative markets, offering readers a unique, integrated perspective on HRC pricing, market structure, and risk transfer in the steel value chain.