Hot Rolled Futures: Faulty Compass Leaves Market Participants Sidelined

This futures market has no direction currently, summing up the sentiment in hot rolled as of late. After a slight index retrace recently, the index is sideways, hovering just shy of $800 per ton. Inflationary headwinds continue to stymie the HR market, as physical as well as futures activity have been subdued. Open interest has been anchored near 20,000 contracts. Current interests have moved further out the forward curve into 2023 as longer term hedgers place more modest HR hedges.

The HR market is experiencing reduced trading volumes from price speculators as the price volatility has dropped quite a bit in the last few weeks. Recent mill price increase announcements so far have not significantly affected the futures curve prices. If anything, the opposite is true.

If we look at Aug. 15 HR settlements versus Sept. 14 settlements, we can see some softness in the HR markets:

Q4 2022: $875 vs. $823—down $52
Q1 2023: $903 vs. $844—down $59
Q2 2023: $908 vs. $850—down $58
Q3 2023: $906 vs. $868—down $38
Q4 2023: $906 vs. $880—down $26

Participants are waiting for HR initial margins to reflect reduced price volatility.

Below is a graph showing the history of the CME Group HR 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 us at info@SteelMarketUpdate.com.

Scrap

BUS futures have continued to slide. Since the April 2022 BUS price peak at $779 per gross ton, futures have retraced $355/gross ton to the latest $424/gross ton for September BUS settlement.

The BUS curve in the last month has shifted from almost a flat curve to a slightly upward sloping curve into the middle of 2023 and then tapers a bit lower.

Full year 2023 BUS is hovering near $450–460/gross ton. Recent softness in the 80/20 export market has signaled concern that October BUS will again be softer especially if HR drifts lower.

Below is another graph showing the history of the CME Group 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.

By Jack Marshall of Crunch Risk LLC