Near term HR Coil futures slide, yet arbitrage may drive volume higher.

The U.S. market continues to experience weak demand across multiple end-use sectors. Manufacturing, for example, has contracted for the past seven months as measured by the ISM PMI, while overall construction spending remains negative YTD. This environment of weak demand has come alongside falling levels of flat rolled imports and recent temporary maintenance outages. We had been expecting sheet prices to rise incrementally due to these supply issues, yet weak demand and the ramp up of new domestic capacity has kept pressure on sheet prices.

Our latest assessment of U.S. Midwest sheet prices reflects these market dynamics as HR coil was near steady m/m at $810 /s.ton and near its six-week average of $808 /s.ton. CR and HDG coil products continued to fall m/m as these were each lower by $46 and $35 /s.ton, respectively.

Sheet prices may now be near a plateau, particularly for HR and HDG coil. While CR coil prices have fallen m/m, the spread between CR and HR coil has been steady somewhat through the year while the spread of HDG coil over HR coil has fallen. This decline in HDG coil has primarily come about due to rising domestic capacity.

LHS: HR coil price, RHS: Spread of CR and HDG coil over HR coil, 3mma, $/st

  Back to Top

As physical prices have steadied over the past six weeks, the HR Coil futures market has become quiet as well. Yet, higher futures prices in late 2025 Q4 and 2026 Q1 continue to look attractive as an arbitrage opportunity based on current spot market dynamics.

Over the past month, HR Coil futures contract from CME Group has been largely quiet. Prices in the very near term like November and December have fallen from an average of $849 /s.ton on our September 8 review to $840 /s.ton earlier this week. For 2026, futures are pricing in an average of $876 /s.ton versus $880 /s.ton earlier last month. Open interest in the past month was also steady, while daily volume had multiple days above 2,000 contracts, which represents 40,000 s.ton/day.

Limited activity in the futures market largely mimics activity in the physical market. Demand there remains slower than normal, which has pressured prices, even as import arrivals have fallen due to the impact of higher S232 tariffs. Yet, the continued divergence of futures prices three-to-five months in the future versus current spot prices remains an attractive arbitrage opportunity. We expect that recent spot deals as well as discounted contract prices, both of which are closer to $750 /s.ton than our latest HR coil assessment of $810 /s.ton, offer enough opportunity to buy the physical steel and sell it forward for the right operator.

This arbitrage opportunity may be restricted to certain physical buyers. Additionally, as the following chart shows, opportunities like this may appear and take time before it fully goes away. Regardless of that timing, natural sellers should take a serious look at locking in a portion of futures sales over the near term, particularly as end demand is set to fall seasonally through the end of the year.

Discounted contract price, estimate, vs. three-month futures, $/st

  Back to Top