Hot Rolled Futures: Futures Curve Remains Backwardated

HR futures trading has been very muted this week as only 5,300 ST of futures traded since the latest round of mill price increase announcements and rising scrap prices.  This past week the focus has been on balance of 2017 with Q3’17 the most active.  The futures curve remains well backwardated. May’17 traded @ $648/ST and $647/ST and Q3’17 has traded at a weighted average of $609/ST. Note the May to July discount of just under $40/ST.

There has been good two way futures interest but buyers are cautiously bidding well below current settlement values and sellers are offering slightly closer to the curve values on the topside.  Sellers have not been reaching in this market. Market sentiment is clear as mud. Various reported HR spot transactions did not provide a very strong directional signal this week. However, prices continue to edge higher as concern over supply constraints remain.

The current offer in the balance of 2017 stands around $621/ST average ($650/ST offer Q2’17, $612/ST offer Q3’17 and $602/ST offer Q4’17) 

Below is a graph showing the history of the hot rolled futures forward curve. You will need to view the graph on our website to use its 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.

Scrap

Latest has bulk cargo trading in Europe at over $303/MT 80/20 CFR T.  Recent established range in LME scrap has been steady just above $300. The latest unrest in the Ukraine has the potential to further constrain supplies of pig iron and shift demand further to CFR T scrap.  Near date LME scrap prices have edged higher as offers backed up on the Ukraine news. Improving weather in Europe could spur addition demand from Turkey.

LME scrap snapshot – $/MT

$303/$313 Apr’17
$293.5 traded May’17
$285/$296 Jun’17

Constrained supplies and additional demand for domestic primes (BUS) helped push prices up over $60/GT from last month. Early indications suggest prices may hold up going into April due to winter weather.  Question everyone asking is how long can scrap prices remain at the current elevated levels due to supply constraints and increased demand. Current BUS offers indicate there is some concern it might take a while before prices retreat.

BUS scrap snapshot – $/GT

$320/$350 Q2’17
$300/$325 2H’17
$295/$315 Cal’18

Below is another graph showing the history of the busheling scrap futures forward curve. You will need to view the graph on our website to use its 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.