Hot Rolled Futures: More Futures Interest This Week

The CME HR spot month future settlement reflects minimal price movements in physical markets this month as the front month settlement of $396/ST [$19.80cwt] is barely changed from last week. However, there is a flicker of optimism this week in a market that is otherwise over-shadowed by bearish sentiment. We have seen more futures interest this week as buyers came into the market likely in response to higher iron ore prices and higher export scrap prices. Some mixed signals persist such as mill capacity utilization rates continue to move modestly higher, lead-times for HR seem mired at around 3.5 weeks while CR and Coated are getting longer, and concern import duty cases might have less impact than originally expected.

The current slope of the settlement values for the CME HR curve is very gradual with Mar/Jun’16 @$402 ST up $2 from last week, 2H’16 @ $410 up just under $5 from last week, 1H’17 @ $414 up just under $4 from last week, and 2H’17 @ $416 up just over $2 from last week.  Continued compression of HR futures settlement values reflect limited scope for significantly higher prices out the next 18 months as there is less than a $20 spread between the spot month versus 18 month.

For the second consecutive Friday we had an active day in HR futures with activity mainly focused on 2H’16. Mar’16 traded @ $399 ST [$19.95cwt], May’16 traded @ $400 ST [$20.00cwt], and 2H’16 traded @ $407 ST [$20.35cwt].

Monday we had a light day with the focus being on the nearby months as Mar’16 and Apr’16 traded @ $400 ST [$20.00cwt] and Jun’16 traded @ $405 ST [$20.25cwt]. The large jump in iron ore prices this week continued the upward trend from last week and seems to have spurred some HR buying interest from hedgers who have been sitting on the sidelines.
 
Today the HR futures market focus has been on Q2’16. It initially traded @$402 ST [$20.10cwt], was followed @$405 ST [$20.25cwt] then @$407 ST [$20.35cwt] then @$408 ST [$20.40cwt].  Since our last update HR futures have traded 36,860 ST and open interest in the HR contract stands at 543,180 ST (27,159 contracts).

Below is a graphic of the HRC Futures Forward Curve. The interactive capabilities of the graph can only be used in Steel Market Update website here. If you have any issues logging in or navigating the website please contact us at info@steelmarketupdate.com or (800) 432 3475.

Scrap

After no movement of significance for most of the last week CFR Turkish scrap prices moved sharply higher on the day and hit the mid $180 to $190 mark. In short order CFR Turkey scrap has recovered from its recent slide as Turkish mills which have been running tight scrap inventories move to re-supply due to upcoming import tariff concerns.  Also stronger China prices on semi-finished steel exports and higher iron ore prices are changing the alternatives mix just as Turkish mills are looking to re-supply for Q2’16 orders.  Midwest #1 Busheling scrap market chatter has prices for BUS sideways to up slightly for Mar’16.

Mar’16 offered @ $190/GT
Apr’16 offered @ $190/GT
May’16 offered @ $190/GT
Jun’16 offered @ $190/GT
2H’16  offered @ $215/GT