Hot Rolled Futures: Participants Watch for Signs Demand Will Return

Hot-rolled (HR) futures participants market watch as they wait for signs that demand will return even as the dollar continues to appreciate.

This futures market while generally lower than at the beginning of September still feels like it has no direction as the HR indexes continue to bounce back and forth just shy of $800 per short ton. Inflationary headwinds continue to stymie the HR market as well as the Federal Reserve. Leading to another 75 basis points hike in interest rates by the Federal Reserve.

Physical as well as HR futures activity remains subdued but is starting to show signs of life. HR futures open interest has started to pick up again as it added about 3,600 contracts this month with more new hedges being placed in Cal’23. Near-term months remain a bit more cloudy as the dollar strength continues to increase the downward price pressure from imported steel.

HR futures trading volumes for September have registered just shy of 20,000 short tons per day. HR futures activity seems to be linked to program hedgers and position adjustment rather than opportunistic trading.

If we look at Sept. 1 HR settlements versus yesterday’s settlements ( Sep 28th) we can see continued softness in the HR markets:

Q4’22 802/779 down 23
Q1’23 824/801 down 23
Q2’23 860/825 down 35
Q3’23 885/855 down 30
Q4’23 895/856 down 39

HR initial margins have been reduced reflecting the reduced expectations for future market 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

Busheling Ferrous Scrap (BUS) futures prices continue to retrace downward. Early chatter has BUS sideways to down $20 per gross ton for Oct’22 ($424 per gross ton Sep’22). Bids in the front two months of BUS are sub $400 per gross ton.

Continued softness in the 80/20 export market points to more weakness in October BUS as more alternatives are available.

Since the beginning of September, BUS values have declined as below: (Sept. 1, 2022 versus Sept. 28, 2022).

Q4’22 477/410 down 67
Q1’23 490/430 down 60
Q2’23 487/427 down 60
Q3’23 465/431 down 34
Q4’23 465/430 down 35

The shift in HR and BUS settlement values over the month of September reflects a $30 per ton pickup in H1’23 metal margin (HR minus BUS) with a negligible change in value in the latter half of 2023.

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