Hot Rolled Futures Find Support after Sell Off

After the recent sell off of HRC futures, it appears the market has reached a critical support level with Cal 15 trading at $620.  Near months aren’t much higher with Nov14 trading around $623 and Dec14 at $621.  The selloff came as concerns over the global economy came to light in recent weeks.  The International Monetary Fund lowered their forecast for global economic growth down to 3.3 percent from 3.7 percent earlier this year.  Additionally, weak demand from China has been a continuing concern as the rapidly growing economy seems to be slowing down.

However, HRC futures seem a bit oversold relative to the fundamentals in the physical market.  Q1 15, now trading at $620, was trading at $638 just over two weeks ago.  While the physical market has seen softening of prices recently, it is unlikely a dramatic price reduction will occur since pricing power favors steel mills as consolidation of the industry continues.  Four companies (ArcelorMittal, US Steel, Nucor, and AK Steel) now control over three-fourths of HRC production in the US and Canada.  With the current spot market around $650 and Cal 15 reaching a critical support level this week, it is likely that HRC futures will trade higher in the near to medium term.