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Most American steel producers have raised their base price for physical sales to $1,100/st or higher, up from $460-510/st in late November, according to Argus. These price hikes in the physical market have also caused prompt month CME HRC futures (March) to rally nearly $300/st since mid-January. AEGIS notes that most of this rally has occurred towards the front end of the futures curve, leading to a severely backwardated market. Despite this significant rally, a backwardated market favors the consumer who needs to do long-term hedging, as futures prices are lower than the prompt month. |
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Steel buyers have had to accept these ever-increasing prices, largely because end-user demand has increased, causing service center inventories to dwindle. Steelmakers have been disciplined about production in recent months, with capacity utilization levels at 75% since October. These factors have helped push up both spot and futures since last fall. As we hinted above, steel consumers such as automotive manufacturers might consider utilizing the currently backwardated market by hedging their long-term needs. We suggest using CME HRC swaps, as liquidity in that market has grown and stabilized in the past two years. Since 2022, the average daily volume has been approximately 1,145 contracts, compared to 880 contracts/day in 2020 through 2021. In the entire decade of 2010 to 2019, less than 400 contracts per day were traded on average. Please contact AEGIS on how to hedge your steel needs in this severely backwardated market. (3/10/2023) |
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Note: Clients with AEGIS Platform access can see this and other research, plus hedge portfolio reporting and tools here. |
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AEGIS Insights |
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03/08/2023: AEGIS Factor Matrices: Most important variables affecting metals prices 02/24/2023: European Aluminum Smelters Improve, But Not Enough To Entice More Production 02/07/2023: Will Aluminum's Rally Continue? 01/24/2023: Peruvian Protests Could Support Copper Prices 01/11/2023: Nickel Prices Could Remain Volatile Into 2023 |
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| Important Headlines | ||
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3/9/2023: Germany's Speira to end Rheinwerk aluminium smelting due to energy costs 3/9/2023: Peru mining firms' logistics at risk from extended protests, Fitch says 3/8/2023: Panama and Canada's First Quantum agree on final text for contract 3/7/2023: Cobalt supplies to swamp market, pressure prices further 3/7/2023: Emirates Global Aluminium's 2022 profit surges to a record $2 bln 3/7/2023: LME faces further legal action in London court 3/7/2023: US HRC: Prices up, mills push further 3/5/2023: Column: Automakers rush in where miners fear to tread 3/4/2023: Peruvian communities to resume blockade of crucial “mining corridor” |
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Important Disclosure: Indicative prices are provided for information purposes only, and do not represent a commitment from AEGIS Hedging Solutions LLC ("Aegis") to assist any client to transact at those prices, or at any price, in the future. Aegis makes no guarantee to the accuracy or completeness of such information. Aegis and/or its trading principals do not offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Certain information in this presentation may constitute forward-looking statements, which can be identified by the use of forward-looking terminology such as “edge,” “advantage,” “opportunity,” “believe” or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities.
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