HR futures: Volatility, tariffs, and global shifts - What's next for prices in 2025?

Source: Bloomberg

Physical market participants are cautious and reluctant to increase inventory levels amidst uncertainty. While cash-and-carry trades remain viable due to the structure of CME HRC’s curve, the premium for forward sales is not sufficient to justify holding inventory. This is evident through the lack of deferred trading along the curve. For example, the Dec. ’24/Dec. ’25 price spread stood at -$105/st as of Dec. 4.

Taking current Nucor consumer spot price (CSP) offer levels at $750/st against underlying indices for Midwest HRC of $671/st, we have an approximate $122/st spread for spot against December 2025 as of Dec. 4. This hesitation is contributing to a broader sense of uncertainty in the market.

CME busheling futures

Absent from HRC’s price action, CME BUS futures have been relatively rangebound, with buying pressure materializing on screen for 2025 expiries. The CME HRC vs. CME BUS spread has found stability at $350 per gross ton for the rolling month three expiry. As of Dec. 4 is Feb. ’25, this is just shy of the one-year mean of $360/gt.

The launch of the CME Chicago Busheling (BUS) contract on Dec. 16 adds another layer of complexity. Declining participation in 2024 on the existing Midwest BUS contract is leading traders to anticipate a resurgence of BUS trading with the launch of the Chicago contract running in parallel for 2025. Expect to see enhanced liquidity and price discovery with the advent of this new contract.

Dec. 4 CME HRC /CME BUS Rolling M3 Spread (Feb. ’25)

Source Bloomberg

Despite these challenges, there is optimism that tariffs and protectionist measures may provide a turning point. Expectations for 2025 suggest tariffs could play a key role in stabilizing or even boosting US HRC prices. Although Chinese production remains aggressive and experienced a 4% contraction in November 2024 steel PMI, new tariffs on steel imports to the US could create a more favorable environment for US mills. This could enable them to raise prices further. We would expect the scrap price side of the electric-arc furnace (EAF) equation to improve if mills are able to capitalize on strength from implied tariff structures.

Additionally, the widening price spreads between US HRC and international markets could offer arbitrage opportunities. Futures markets in the global HRC sector could become more attractive as spreads expand. This could provide traders with avenues to capitalize on pricing shifts from Europe, the US, and Asia.

The US HRC market is at a crossroads. Volatility continues to define price action. However, external factors like tariffs, arbitrage opportunities, and shifting scrap dynamics could offer significant upside. As 2025 approaches, all eyes will be on evolving trade policies, scrap supply conditions, and the performance of the new CME BUS contract. While the path forward remains uncertain, the market holds potential for recovery and growth.

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