We expect the market to remain tight for at least the next 30 to 60 days. Still, supply-side factors like the continued ramp up of new U.S. capacity and the potential resolution to financial difficulties for a Mexican producer mean that material should be more available in Q2 2023 compared to Q1. It still remains to be seen if the recent uptick in demand is primarily driven by buyers maxing out contracts and getting ahead of more price increases, or if end-use demand is actually strong. If the latter, prices are more likely to hang around current levels or even rise by more.

CR coil’s premium over HR coil has risen again as prices for the former outpace the latter
LHS: Sheet prices FOB Midwest mill, $/st
RHS: Premium, base HDG coil over HR coil, $/st

We expect the market to remain tight for at least the next 30 to 60 days. Still, supply-side factors like the continued ramp up of new U.S. capacity and the potential resolution to financial difficulties for a Mexican producer mean that material should be more available in Q2 2023 compared to Q1. It still remains to be seen if the recent uptick in demand is primarily driven by buyers maxing out contracts and getting ahead of more price increases, or if end-use demand is actually strong. If the latter, prices are more likely to hang around current levels or even rise by more.

CME Group’s HR Coil futures contracts for 2023 fell back from recent highs last month. Futures are pricing in a peak in March before sliding back to lower levels in the summer months.

After rising over the past two months, prices of CME Group’s HR Coil futures contracts have fallen back from recent highs. The current market (prices as of February 6) has priced H2 2023 in at $773 /s.ton, a $46 /s.ton decline from $819 /s.ton at this time last month. For all of 2023, the recent futures price was $805 /s.ton. Prices further out for 2024 to 2025 fell at an even faster rate, losing $66 /s.ton, yet volume associated with these contracts remains limited. Open interest remains strong with nearly 500,000 s.tons on the CME.

This past November was the recent low for 2023 futures prices. As mills visibly cut back on production and started raising physical prices, the futures market quickly priced in stronger prices for 2023 as well as 2024 to 2025. That trend of higher futures prices has now ended. Certainly, this could only be a pause, though we expect that the downward shift in the curve is at least partially reflective of rising domestic production while the manufacturing market has contracted for the past three months, per national PMI data. 

Over the near term, we expect some material to come onto the market that was sold forward, based on an attractive arbitrage when spot physical prices in November and December were close to $600 /s.ton versus futures prices in H1 2023 at that time of $750-$760 /s.ton. This material may temporarily displace some potential mill sales. Regardless of this trend change, the futures market continues to offer stability to both buyers and sellers in this volatile market. Prices through the curve remain well above historical levels, which may be beneficial for natural sellers. For buyers, the somewhat flat curve offers the ability to lock in prices well below the annual averages of the past two years.   

Scepticism builds in futures market over 2023
LHS: CME HRC contract prices, $/st
RHS: Open interest, contracts, st

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