Hot Rolled Futures Flattening

Flattening of HR futures curve due to decline in nearby futures prices generates heavy trading.

It has been an active week for HR futures as almost 80,000 ST of HR futures were traded. Clearly good selling interest was met by some strong buying of the latest price dip. In the past week while the index that the CME uses only dropped by $2 to $605/ST[$30.25/cwt] for HR, the futures settlements declined $11/ST to $15/ST in the near months flattening the futures curve considerably and generating a lot of interest and trades.

Currently the HR futures curve is relatively flat from July 2017 out through all the active futures months with open interest(Dec 2018) as it trades around $575/ST[$28.75/cwt] .  Latest June 2017 settlement at $583/ST[$29.15/cwt] leaves a minimal backwardation to Q3’17 especially when compared to futures prices from just a few weeks back.  With the bulk of the futures trading between $573/ST[$28.65/cwt] and $575/ST[$28.75/cwt] for most months beyond June 2107 it appears to be a significant level for either camp regarding future direction of steel prices.

The U.S. Commerce Section 232 hearings likely the main focus going into next week as they should provide some directional impetus. In addition softer auto sales and declining mill lead times could generate some more sales. However, Rhamadan Holiday could provide a little rest from the recent surge of activity.

Open interest rose 651 contracts this week or 13,020 ST.  June 2017 was very active trading over 13,000 ST and dropping from $594/ST[$29.70/cwt] trade on Friday to $583/ST[$29.15/cwt] on Tuesday. That puts the June future $32/ST below the current May 2017 average for the index the CME uses and $22/ST below the latest indicated spot level. Also Q4’17 was a very active period with open interest rising about 3,000 ST per month on roughly 8,000 ST per month of futures trading. We also had a slight pickup in 1H’18 open interest this week as inquiries have been on the rise.

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

Recent 80/20 export scrap cargoes trading in the low $270’s does not seem to be taking much away from the better bid SC futures which have been trading in the $275/MT to $280/MT range.  Some concern as Chinese steel demand falling as indicated by iron ore prices.  Sliding iron ore prices continue  which will put addition pressure on LME scrap prices.  Also after the brief run-up in Turkey on the latest restocking we could see some price bleed as Ramadan will slow demand. Latest index has SC at $272/MT.

In the U.S. prime scrap appears to be holding recent levels with the chatter calling for another sideways price market.( BUS $355/GT)   Recent bad weather and the ensuing flooding has created barge and railcar bottlenecks which along with recent shortages of obsolete grades of HMS and P&S should help to maintain prime scrap prices which will potentially already be in short supply due to potentially longer summer auto production plant maintenance outages.  Current futures interests in 2H’17 BUS are basically $310/GT bid with offers at $325/GT.  Q3’17 BUS is offered at $330/GT. BUS futures sellers have been holding steady with buyers unwilling to reach.

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.