Hot Rolled Futures Drop to the Pychological $500 Level

We saw Q4’16 and 1H’17 close out last week at $512/ST [$25.60/cwt] and $510/ST [$25.50/cwt] with roughly 13,560 ST trading.  This week has been a bit quieter with Q4’16 trading down at $505/ST [ $25.25/cwt] in 1,000 ST for the quarter, and with Q2’17 trading down to $503/ST [$25.15/cwt] in 1,000 ST for the quarter.  Following the release of the index on Wednesday Q1’17 traded at $495/ST [$24.75/cwt] in 900 ST for the quarter.  Cal’17 also traded at $495/ST in just 200 ST per month.

It is worth noting that the  price differential between the spot month future and  Cal’17 continues to contract.  The end of last month it was $60 and it is now down to $47.  It is also surprising that the Cal’17 curve remains basically flat with just a $5 spread between Jan’17 and Dec’17.   Not to suggest that past 12 months of futures month end settlements in HR will be a good predictor of future settlements but it is worth noting that only one month settled within $10 of the previous month.  Otherwise the average settlement differential between the last 12 futures settlements is $36 with the low being $7 and the high being $104.  (CME HR Settlements for Sep’15 $444, Oct’15 $412, Nov’15 $380, Dec’15 $364, Jan’16 $389, Feb’16 $396, Mar’16 $420, Apr’16 $486, May’16 $590, Jun’16 $631, Jul’16 $621, Aug’16 $592.)  A new set of  circumvent lawsuits submitted to the Commerce department by injured U.S parties against Vietnam steel producers should generate some added volatility to these markets.

Spot 529

Q4’16    502
Q1’17    498
2H’17    493
Cal’17    495
Cal’18    520

However current buying interest in Cal’17 is coming in around $250 GT with 1H’17 last trading at $258/GT.

Scrap (BUS = #1 busheling scrap)

Lower HR prices are impacting BUS price expectations here this week.  In the near dates BUS buyers have retreated with Q4’16 last trading last week at $245/GT.  Offers remain at $250/ GT for the period in small size.   Market sentiment in BUS is a bit bearish but no firm indication on where October will come in yet.  Maybe flat to slightly lower.  Adding to the bearish sentiment in scrap is that CFR Turkish exports have been slowing down and prices have been declining slightly, down $6 since Monday.

Below are two graphs showing the history of the hot rolled and busheling scrap futures forward curves. You will need to view the graphs on our website to use their interactive features, you can do so by clicking here. If you need assistance with either logging in or navigating the website, please contact our office at 800-432-3475 or info@SteelMarketUpdate.com.