Hot Rolled Futures: Rangebound

HR futures prices along the curve have been range bound this past week on modest trading activity.  The quiet week could be chalked up to the fact that a good portion of the interested parties were attending the Steel Summit conference in Atlanta and were otherwise occupied.  

This week, 40,600 ST of HR traded and open interest rose over 25,000 ST to 314,380 ST.  A significant portion of the open interest increase was in a Jan’18-Oct’18 strip of trades that represented about half the past week’s volume (20,000 ST) and traded at an average weighted price of $634.50/ST[$31.725/cwt]. In the nearby Q4’17 months, the market traded between $630/ST[$31.5/cwt] and $634/ST[$31.70/cwt] on about 15,000 ST. So for all the futures months that traded this past week, the price spread was less than $10/ST[$0.50/cwt], which can be seen in the relatively flat shape of the futures curve.  It is worth noting that most of the steel supply input futures curves are well backwardated, as compared to the relatively flat HR curve.

Scrap

Uncertainty remains in the scrap markets, while the export cargo activity from U.S. ports has been quiet for the last two weeks. Some European cargoes have traded for October delivery in the mid $350 range keeping the upward pressure on scrap flows. Today, Q4’17 SC futures traded in the low $340 range. Forecasters suggest the current strong Chinese steel prices could continue to provide the Turkish steel market with continued strong demand, which should keep up the pressure on U.S. export supplies of 80/20 scrap.

As for U.S. prime scrap, BUS pricing still appears very uncertain with wide ranges for the final Sep’17 prices being discussed. We have been hearing numbers in the $20 to $40/GT range for Sep’17. The impact of Hurricane Harvey has added to future market uncertainty as traders and hedgers try to determine the timing of its impact. More scrap supply and or more flat rolled demand to replace current losses just muddies the landscape of Q4’17 supply and demand for both.

Current bids for Q4’17 BUS hover around the $360/GT level. Participants will continue to focus on the spread between BUS and SC expecting the BUS to catch up.