Hot Rolled Futures: Shifting Sentiment in HR and BUS

Another modest price increase in the HR index (+$17/ST) over last week has been accompanied by a continued push higher in the HR futures curve. Monday and Tuesday were extremely subdued as the SMU Steel Summit in Atlanta had most participants otherwise occupied. Recent concerns about global steel prices and the slightly bearish sentiment for U.S. Midwest HR prices appeared to shift to a more bullish tone. Last week was fairly balanced as the market was basically neutral, but as this week progressed we saw a noticeable increase in buy orders with prices getting lifted modestly. While domestic demand remains strong, supply chain issues for the automotive sector give pause. Perhaps this latest wave of buying was due to participants coming back with market intelligence they gathered at the SMU conference, tempered with a dose of bullish sentiment from John Packard’s conversations with mill leadership.

In spite of some of these concerns, the HR futures curve shifted up slightly with Q4’21 and Q1’22 HR futures climbing $14/ST and $11/ST from last week. Further out on the HR futures curve, the gain was a bit more modest with Q2’22 and Q3’22 only gaining $8/ST and $7/ST. This past week HR futures participants traded almost 148,000 ST of hedges/trades, and open interest has increased this month to over 34,500, which is roughly 1.38 million ST of exposures.

Continued uncertainty in the global marketplace along with the historically high prices in the HR space appears to be generating more interest in the HR contract, which was certainly evident at this year’s conference. Hedging discussions have taken on more importance as concern grows about the potential velocity of a price retracement.

Scrap

This past week BUS futures curve prices lost about $5-10/GT with September settlement expectations pointing to a $20-30 drop from August BUS settlement at $652/GT.

Since the Aug’21 settlement, the near 6-month average settlement price has declined over $30/GT and the Cal’22 settlement price has declined about $40/GT.