Futures

HR futures: June trading remains muted

Written by Mark Novakovich

June 13, 2024

Trading activity for the CME HRC futures contract has been sporadic so far in June, with a few days seeing transacted volumes exceed 25,000 short tons (st). But overall activity remains muted. This follows a pattern that emerged over the course of May.

Total open interest in the HRC contract is 488,000 st, down roughly 75,000 st from the highs seen towards the latter part of May. The entire curve structure has come under pressure. But the front end has softened the most dramatically, following a weakening physical market. Physical traders have reported soft demand and high inventory levels, which are moving slowly. Some participants have reported seeing tonnage offered in the mid-to-high $600s, with some July capacity still said to be available.

Yesterday’s sideways CRU print did little to guide the market. Other indices are in the $710-$730 range. And Nucor’s most recent Consumer Spot Price (CSP) stands at $720. Futures markets have corroborated the nearby weakness, with the June HRC futures contract falling by $70/st since the beginning of May. The July HRC futures contract is down nearly $100/st over the same period.  Technical/pattern-type traders and funds appear to be net sellers and have further bolstered the recent downside momentum in the HRC futures.

However, the July-to-December futures structure currently sits at a nearly $100 contango. That may start to draw some interest from cash-and-carry players. While commercial interest continues to be largely sidelined, hedge buyers may start to sense an opportunity and support a near-term bottoming.

Interest and activity in the CME’s busheling scrap contact (BUS) continues to decline, with open interest dropping by over 25% since the expiration of the June contract. Some scrap participants have cited frustration with the accuracy of the underlying index used to settle the contract, as well as the lag of the monthly timing. Nevertheless, there is some fundamental buy-side interest, particularly in the deferred positions. But no material sellers have appeared with offers.

Disclaimer: The content of this article is for informational purposes only. The views in this article do not represent financial services or advice. Any opinion expressed should not be treated as a specific inducement to make a particular investment or follow a particular strategy. Views and forecasts expressed are as of date indicated. They are subject to change without notice, may not come to be, and do not represent a recommendation or offer of any particular security, strategy or investment. Strategies mentioned may not be suitable for you. You must make an independent decision regarding investments or strategies mentioned in this article. It is recommended you consider your own particular circumstances and seek the advice from a financial professional before taking action in financial markets.

Mark Novakovich

Mark works at Crunch Risk LLC. He has nearly 20 years experience working in physical and financial commodity markets in various roles, including risk management, logistics, and trading. Most recently, Mark worked for S&P Global’s commodity division in sales and product development, where he was responsible for creating price benchmarks and financially-settled futures contracts.

Read more from Mark Novakovich

Latest in Futures

HR Futures: Which way following election?

Since June, The US hot-rolled coil (HRC) futures market has been in a rare period of prolonged price stability, closely mirroring the subdued volatility seen in the physical market. Over the past five months, futures have been rangebound, with prices oscillating between a floor near $680 and a ceiling around $800. This tight range, highlighted in the chart, underscores a cautious market environment. The chart below shows the rolling 3rd month CME HRC Future.