HR futures: Waiting for a new trend to emerge

Furthermore, the chart below shows pricing for the current active month (June), which traded at its lowest level on record ($756) on May 13. Interestingly, if we disregard the brief drop and recovery, today’s close for the June contract would be its all-time low. This bottom also coincides with when open interest peaked, showing that market participants started closing down positions.

Continuing along with open interest, an interesting development emerged over the week with Money Managers (below). They now represent 7% of total open interest, their highest share since November 2023. Although they remain net short (white line), a divergence is occurring between their long (blue) and short (red) positions. Long positions have held up at levels last seen in January, while short positions are approaching levels from October 2023. This simultaneous growth in long and short positions underscores the fact that the most speculative participants have not only increased activity, but strongly hold differing market perspectives – resulting in increased overall uncertainty of market direction.

Finally, and inevitably, all bright beginnings eventually fade, as the novelty wears off and the new becomes the everyday with Nucor’s weekly price, the Consumer Spot Price (CSP). From its conception to now, the front of the futures curve clearly awaits the Monday release, whereas in the physical market it may be losing luster. This reverts to what is happening in the fundamentals, which indicate soft demand. Domestic lead times are so-so, spot pricing continues to slide, and steel-sector specific economic data has been disappointing. All of this with currently elevated levels of profitability. Inventories are healthy, further signaling that there is not enough demand to chew through the flood of imports and the up-ticking domestic production levels. Thus, the divergence in physical and financial may be due to the upcoming stalemate we are approaching. Mills are saying they are comfortable with orders, while buyers are saying they are comfortable with their inventories. These two narratives can only coexist for a brief period. It is just a matter of time before one “blinks first” and a new trend emerges.

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