HR Futures: Midwest ferrous futures consolidate gains, market anxiously awaits next move

Four weeks have passed since the last article from Rock Trading Advisors on January 30. The paint has dried, and Midwest HRC futures have exploded higher in response to President Trump’s declaration of impending 25% tariffs on all imported steel products.

The rolling 2nd month CME Midwest HRC future erupted through the top end of its downtrend, one that dates back to the peak of the winter 2022 rally. It also broke out of its narrow range seen dating back to June of last year.

Rolling 2nd month CME Midwest HRC future $/st

Trading volume surged, checking all of the boxes to fulfill the triangle pattern discussed in the January 30 article.

March CME HRC future $/st w aggregate curve volume and 5-Day Avg.

It was a relatively boring Super Bowl Sunday, except for those in steel and manufacturing. Since the settlements of Friday, Feb. 7, through today, the futures curve has seen gains of as much as $125/st in the April future and roughly $100/st in the March, May, and June futures. And the curve has quickly shifted from flat to backwardation.

CME HRC futures curve $/st

Open interest is the number of outstanding futures contracts, or tons in this case, across a product’s curve. Open interest across the Midwest HRC futures surged to 811,000 tons as of Tuesday night, when the February future expired. This was the highest open interest has been since January 2022. Will open interest exceed January 2022’s high of 903,000 tons? Remember, rising prices and expanding open interest indicates a technically strong bull market.

Rolling 2nd month CME HRC future $/st and open interest (red) (22-day M.A. ylw)

Interestingly, busheling futures jumped before February, with the February legacy busheling future settling up $61 per gross ton (gt) MoM while the Chicago future gained $50/gt. The March Chicago busheling future settled today at $495/gt implying a $95/gt, or 24%, increase in two months. Another interesting development has been the spread between these two products, which had been as much as $35. It compressed to nil this week and $5/gt as of today’s settlements. Will this spread remain flat, or will it revert to its inexplicable $20-$30/gt spread?

March CME composite (white) and Chicago (red) busheling futures $/lt

What’s more, the rolling 2nd month busheling future is just now settling above its almost two-year downtrend – perhaps indicating the rally in scrap is just getting started.

Rolling 2nd month CME BUS future $/lt

While it is extremely likely that no one in either the steel or manufacturing industry made a prop bet on blanket 25% steel tariffs being announced on Super Bowl Sunday, it is safe to say there are a number of significant winners and losers as a result. We are are now at the point in the cycle where anyone in steel that you ask will tell you that they knew steel prices would be just shy of $900/st by the end of February.

Steel prices are on the move! Midwest HRC futures have blasted through resistance, open interest is surging, and the market is charging forward! But in the high-stakes world of steel, nothing is certain. Is this rally unstoppable, or is a new challenge waiting just around the corner?

Across the battlefield, supply chains are under fire! Mill lead times are stretching, availability is tightening, and physical buyers are scrambling to lock in tons before it’s too late! Meanwhile, those who went short in the futures market are feeling the squeeze. Will they regroup, or are they on the verge of a full retreat?

And now, a new threat changes everything—tariffs! With a 25% tax on imported steel, the rules of engagement have shifted. Will domestic mills take control, forcing buyers into a corner? Will rising prices trigger a wave of panic buying? Are there more unknowns that lie ahead? Or is there an unseen force ready to push back and turn the tide?

The market stands at a critical moment! Is this just a pause before the next offensive, or is the rally about to fall apart? One thing is for sure — steel’s fight for the future is far from over!

Tune in next time… because knowing the market is half the battle!

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 by Mr. Feldstein should not be treated as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Views and forecasts expressed are as of date indicated, 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.