HR Futures Move Higher, Inflation or Demand Driving Price Hikes?

While the open interest in HR futures has increased about 2,000 contracts since the beginning of the month, the market has yet to decide whether this is due to actual increases in physical demand, or potentially just a short squeeze on futures risk positions. Generally, physical HR hedgers have been rather quiet of late after a busy January turn. A number of them have cited expectations of softer demand in the middle quarters due to the effects of further rate increases. This is reflected in the increasing backward slope of prices between Mar’23 and Mar’24.

In comparing Feb. 1 to Feb. 16 settles of the Mar’23 vs. Mar’24, HR futures widened from -$23/ST ($805/ST vs $782/ST) to -88/ST ($905/ST vs. $817/ST).

BUS futures prices are being pulled higher in the wake of the multiple HR price hikes. Surprisingly, the February BUS settlement was up $26.19 to $475.25/GT. February is typically an off month. The latest BUS futures activity has Mar’23 BUS trading north of $500/GT, with the 2H’23 BUS offered at $485/GT. BUS futures activity has been somewhat muted at the higher settlement prices along the futures curve.

Earthquakes in Turkey likely will lead to some temporary softness for export of 80/20 scrap in the near term. The latest US export cargo prices are down slightly. That, along with warmer spring weather, should also help to improve scrap flows. This might be offset by steadily increasing production from the lower current capacity utilization and the increase in the production from new electric-arc furnace (EAF) plants.

By Jack Marshall of Crunch Risk LLC