The march higher in the HRC spot price continued this week, as market dynamics remain largely unchanged. Mill orderbooks remain tight with long lead times and limited availability, selling out quickly at elevated prices. The largest current problem for end users remains the lack of inventories across the board, as broad strength for goods demand sees no cracks. Global HRC spot prices continue to rise and the structural shortage, both here and abroad, continues to worsen. This week, we will discuss recent headlines and their effect on the futures market as well as the March Durable Goods report released earlier this month.

Late in the week, rumors of trade normalization and E.U. steel tariffs discussion started to permeate through the futures market. As more information has become available, it appears as though any meaningful resolution is months away. However, as this story continues to develop, we refer to our prior analysis published on January 29th between the two partners. As mentioned in that report, historical data suggests European steel imports will likely not impact the current shortage significantly, even if they would match the highest sustained historical levels. Additionally, and possibly more importantly, Europe is facing a supply shortage of their own, making the likelihood of a meaningful number of European imports low.

The other significant story from last week is what happened in the futures market. The chart below is the futures curve from the previous 3 weeks.

The previous 3 weeks are a perfect example of how momentum and speculation in the futures market can lead to decision paralysis for hedgers. Take the September expiration – up $141/ton two weeks ago, and down this week by $155. With no material change in the dynamics within the physical market over that period to justify these moves, it may be hard to see the value of the futures market for your business. Rather than trading the forward curve as a prediction of future spot prices, you can use the curve with one goal in mind: to manage steel price volatility of future physical steel transactions. Two weeks ago, when the September expiration was above the spot price, fixing your future prices was risky. However, the recent sell-off is providing you the opportunity to take a “second look” at fixing future prices (below the current spot price) which could lock in margin for your backlog. This rally has shown how quickly prices can move based off short-term sentiment. If the current curve prices work for your business, then they likely work for your competition as well. If you are being swayed by volatility within the futures market, you may be a step behind and miss opportunities to reduce the risk of your future steel buys.