Hot Rolled Steel and Scrap Futures: Upward Pressure

As of the end of January 2018, HR spot is up over $200/ST. Thus far in May, HR spot is hovering just below $880/ST as indicated by a number of indexes. After an initial surge, HR spot continues to trend higher, but is now slowing down in the rate of change. Concerns about supply constraints continue to keep upward pressure on HR futures prices.  

HR futures inquiries have been steady. This past week, over 50,000 ST of HR futures traded and the open interest sits just shy of 305,000 ST.  

The expected peak period for prices has shifted further forward as reflected in some shifting in the calendar spreads between the June HR future and Q3’18  and Q4’18 HR futures. Back on May 9, Jun’18 HR vs Q3’18 HR was $51 back ( $856-$805); as of yesterday that spread had narrowed to $36 back ($884-$848). Similarly, the Jun’18 HR vs Q4’18 HR calendar spread was $83 back ($856-$773); as of yesterday that spread had narrowed to $79 back ($884-$805).

The market continues to focus on the impact of the tariffs. Which has focused the majority of HR futures activity in the balance of the 2018 Calendar periods. However, inquiries have started to pick up for both Q1’19 and Q2’19.

At a $136 discount to Jun’18 HR, the 12-month forward (May’19) remains well backwardated and points to some healthy mean reversion.

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 Brett at 706-216-2140 or Brett@SteelMarketUpdate.com.

Scrap

In BUS as of the end of January 2018, spot is up $77/GT. Quite a difference in price change when compared to HR.

Back in January, the spread between HR and BUS was $307 ($677-$370). The most recent spread between HR and BUS is $495 (mtd avg May HR $879-May AMM settle $384), which reflects a $188 widening of the HR vs BUS spread. This week, BUS futures are up about $10/GT as both Q3’18 and Q4’18 traded at $400/GT.    The metal margin spread in Q4’18 also traded this week at $400 ($809 HR, $409 BUS).  

In Midwest Shred USSQ Jun’18 traded at $366/GT. The Futures curve in 2018 for shred remains pretty flat. The Q3’18 and Q4’18 futures were bid at $360/GT the other day. The curve remains fairly steady to last week.

In the 80/20 scrap futures, we have seen a little slippage from last week as the curve has dropped about $10/MT.

Jun’18 last settled at $340/MT with a $25 backwardation to the Dec’18 future. A little softness due to limited spot cargo activity.

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.

We have started tracking shredded scrap futures, shown below. Once we have built a sizeable database, we will add this data to our website.