Futures

Market pressures trigger HR futures reversal
Written by Joshua Toney
April 3, 2025
Market dynamics are shifting rapidly, with futures pricing diverging from physical fundamentals, creating a complex landscape for steel traders.
Import arbitrage opportunities are under increased scrutiny as forward curves signal potential shifts. Volatility in the CME US hot-rolled coil (HRC) spread market is intensifying, mirroring broader market uncertainties.
Current conditions highlight a widening disconnect between spot market realities and futures valuations. Until Wednesday’s index print, tariff levels offered little apparent support. A key observation: June 2025 futures were trading nearly at pre-tariff parity, raising a critical question: Is the physical HRC market set for a sharp decline, or are futures experiencing an oversold scenario?
June 2025 HR candlestick with technicals (last six months)

Source: Bloomberg
Buying on blocks in Wednesday’s session finally provided some market support. However, policy clarifications from “Liberation Day” add another layer of uncertainty. Beyond import restrictions, it remains unclear what exactly the steel market is being “liberated” from.
March 2025 flat product license data shows only a modest 100,000-metric-ton (mt) decline (Source: Department of Commerce International Trade Administration), suggesting limited immediate impact.
Thin trading volumes across platforms reinforces the uncertain backdrop. Block trades in HRC and busheling (BCH) have slowed compared to last month’s surge. Import arbitrage spreads, while historically elevated, are narrowing. This suggests that if forward curve projections hold, imports may become less viable amid weakening demand.
The idling of Cleveland-Cliffs’ Dearborn, Mich., steelmaking operations further underscores this bearish outlook, particularly as additional tariffs on imported vehicles and components come into effect.
Raw materials and mill margins: signs of pressure
On the raw materials side, iron ore prices remain stable but uninspiring. Potential impacts from the Simandou Mine in Guinea, expected to start commercial production by the end of the year, remain a 2025 consideration.
Meanwhile, US mill margin spreads present emerging positioning opportunities, as scrap appears poised for pressure in the April trade cycle.
Turkish importers face heightened risk of EU-imposed scrap export protections, adding another layer of uncertainty. Turkish mills have remained largely inactive. This is partly due to the Eid holiday, but also in anticipation of tariff outcomes and geopolitical instability following the arrest of Prime Minister’s Erdogan’s opposition.
As Q2 begins, the market finds itself at a crossroads. Participants await clarity on tariffs while grappling with a weakened demand environment. The intersection of policy uncertainty and deteriorating fundamentals suggests continued volatility. Special attention should be paid to global spread relationships as a gauge for potential arbitrage plays.
June 2025 US HRC – EU HRC spread (short ton/mt differential not factored)

Source: Bloomberg
With futures and physical markets diverging, the critical question remains:
Which side will yield – and at what cost?
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Joshua Toney
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