Futures

HRC Futures 2013 a Tale of Two Halves…

Written by John Packard

January 5, 2014

The year 2013 for hot rolled steel futures was a story of two halves, with the beginning of the year trading in a strong contango and the second half of the year stuck in backwardation. The beginning of the year was characterized by low prices and significant volatility while the second half of the year saw prices move higher as volatility declined. The end of the year went out with a whimper as prices softened ever so slightly over the holiday period with very limited trading.

The past few months have seen prices move in a very narrow range, both in the physical spot market as well as the futures market.  It seems that while uncertainty persisted in terms of sentiment in the physical market, actual movement in prices have not been significant. Questions remain over what impact the lack of CRU minus deals will have on both volatility and spurring imports, both of these topics will be in the forefront in 2014. It seems to many the trading range for HRC will be stuck between the low 600s and high 600s but with increased volatility. This increased volatility should spark greater imports as the domestic/foreign price spreads should widen to replacement values more often this year than last. Already, the forward curve is pricing in a severe drop in prices as we come to the second quarter this year, due in large part to the amount of imported steel set to arrive in the next few months.

Volumes in the futures market this year have been strong year on year, with well over 1 million tons having traded, representing a near 25 percent increase in year-over-year volumes. With that said, volumes tended to remain spotty with periods of high volumes followed by periods of almost no volume.  Hopefully in 2014 the consistency of trading will strengthen and the expected increased volatility will spark a more fluid trading pattern day on day and week on week.

2014 could prove to be a huge year for the futures market as increased volatility, increased spot deals, lack of long term pricing in the physical market and ever increasing sophistication of steel market participants should all help put the futures market on track to become an evermore ingrained part of doing business in the steel industry.

The physical market remains steady with prices trading around $670 per ton. 

The space below is filled by an interactive graph showing the HRC forward curve. The graphic is on our website and can only be seen when signed into the website and reading the newsletter there.

{amchart id=”73″ HRC Futures Forward Curve}
 
U.S. Midwest #1 Busheling Ferrous Scrap (AMM) Prices a Slow Start to Trading in 2013
 
2013 was the first full year of trading for the AMM busheling contract and it proved to be a bit of a disappointment.  After some initial enthusiasm from market participants and a bevy of trades early in the year, the lack of volatility has put a damper on trading in the second half of the year. The high point of the year came in May when one trade of over 12,000 tons went through on q3+q4 at 377. This proved to be the low point in pricing as well as the largest single trade by volume and represented virtually all of the open interest for the remainder of the year.   Time will tell but just as the HRC futures market is hoping for increased volatility to spur more trading, so is the busheling market. Also, many in support roles of the futures market are needed to educate and market this product to the industry as the lack of understanding of how to use futures has led to many potential traders not entering the market.

Again, there have been no reported trades this past week.

Another interactive graphic is below showing the BUS forward curve.

{amchart id=”74″ BUS Futures Forward Curve}

John Packard

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