Futures
Hot Rolled Futures: Modest Retreat
Written by Jack Marshall
October 12, 2017
The following article on the hot rolled coil (HRC) steel and financial futures markets was written by Jack Marshall of Crunch Risk LLC. Here is how Jack saw trading over the past week:
Steel
As the HR index retreated to $598/ST[$29.90/cwt] this week, we saw further price declines of the nearby futures while the medium to longer-term months only retreated slightly leaving a contango curve which is more steeply sloped from spot month forward.
Today, Nov’17 traded at $588/ST[$29.40/cwt], which is down $12/ST just since last Friday. Dec’17 traded at $590/ST[$29.50/cwt], which is down $8/ST since last Friday. Interestingly, the Cal’18 strip traded yesterday at $599/ST[$29.95/cwt], which is only $1/ST above the latest spot index settle.
Trading volumes this week are a bit more modest than last week with just under 24,000 ST trading along the curve. The nearby six months were the most active periods, but the 2018 Calendar also traded this week dipping below $600/ST[$30/cwt]. Thus leaving the gap between the latest Nov’17 price traded and the latest Cal’18 price traded at only $11/ST.
Today, Q1’18 HRO $620 call options traded at a $22/ST premium for 200 ST per month. With a call strike roughly 3.7 percent above the latest reported index, the break-even points for this strike are $642, $598.
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 cargoes of 80/20 trading at $315/MT helped bring the LME SC scrap market back above the $300 level. In the last week, it has bounced back about $15/Mt in the nearby months due to Turkish mills’ need to restock after their recent hiatus and billet prices retracing higher. Dec’17 SC futures (LME steel scrap) traded today at $310/MT.
BUS futures have traded off in step with the October prime scrap index dropping to $333/GT. Lower capacity utilization rates and readily available BUS contributed to the steep drop. The lower levels have brought out more inquiries looking for BUS offers in both the nearby months and Cal’18. This week we traded Cal’18 BUS at $325/GT. The market on the follow is $325/GT bid for Cal’18. In Dec -Feb’18 the market is $330/GT bid.
Currently the metal margin spread – HR versus BUS – has been running around $275.
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.
Jack Marshall
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