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Rising Trading Volumes Reflect Market Hedging and Supply Concerns
Open interest on the CME Group's north European hot-rolled coil (HRC) contract hit a record high yesterday, reflecting heightened trading activity and shifting market expectations. Exchange data revealed that outstanding lots reached 12,503, equivalent to over 250,000 metric tons.
The CME forward curve, which had been relatively flat after a prolonged contango phase, is now firming amid concerns over reduced import penetration. The European Commission's ongoing review of safeguard measures and Eurofer’s proposal to cut flat steel quotas by 50%—along with a melt-and-pour clause for Chinese steel—are key factors influencing market sentiment.
Rising Prices and Trading Activity
Recent trading data shows an uptick in HRC pricing, with notable transactions including:
- February-March strips traded at €615-635/t
- April contracts settled at €640/t, up €7/t from the previous session
- June contracts traded at €650/t
CME HRC traded volume surged by over 76% month-on-month, surpassing 125,000 tons compared to 105,380 tons in January 2024.
Market Positioning and Hedging Strategies
According to the latest US CFTC Commitment of Traders report, in the week ending January 21:
- Short positions from producers, merchants, and processors increased by 519 lots, signaling expectations of a price decline
- Long positions from managed money funds rose by 560 lots, indicating bullish sentiment
A significant portion of short interest stems from traders hedging inventories, while wind turbine supply chain participants are increasingly using HRC contracts to hedge plate exposure. This reflects the growing role of financial instruments in managing risk amid volatile steel markets.
With ongoing policy reviews, shifting demand dynamics, and increased hedging activity, the CME HRC market is set for continued high-volume trading in the coming months.
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STEEL
