LME fob China HRC contract surpasses $1bn in trade

Author Chris Newman, Ferrous Markets senior editor

The LME’s fob China hot-rolled coil (HRC) contract has surpassed $1bn in nominal trade since its launch in March 2019, making it the fastest international steel futures contract to reach this threshold.

The quick uptake of the derivative product is worth noting because it underscores demand for ferrous derivatives by the world's second-largest commodity complex with 2bn t/yr of crude steel production.

Steel is a crucial and omnipresent material in the construction and manufacturing sectors, but almost uniquely the commodity has few hedging tools compared with non-ferrous metals. Surging steel prices over the past year have added billions of dollars in costs for users. US HRC prices are the highest, at record levels above a $2,000/metric tonne (mt) ex-works equivalent for US Midwest coils. That is four times prices of around $500/t a year ago. Americans buy in short tons (st) so the index level has risen to $1,850/st from $455/st over the period.

The effects of that increase have filtered through into markets such as construction, where projects have been put on hold. Waiting it out is one strategy, but price increases are proving persistent, rather than transitory.


Argus fob China HRC price vs LME contract value traded

Argus fob China HRC price vs LME contract value traded 2

The fob China HRC contract, which is cash settled against the Argus fob Tianjin HRC index, took 29 months to reach volumes of 1.8mn t for $1bn in nominal value traded. Turkish rebar derivatives took 37 months to clear that same tonnage, while US HRC derivatives took 46 months.


GFI brokers the trade for the milestone

Steel broker Henry Herbert at GFI cleared 300 lots on 29 July to take the contract above the billion-dollar traded level. “Thrilled to hit the milestone. We’ve been broking this market since the day it launched,” Herbert said.

The 3,000t October trade was done at $980/t, highlighting a significant contango to the physical spot market’s price level at $930/t, with the forward curve pricing in an expectation of a new highs being set for the year. July prices are up 96.6pc year on year.

Fob China HRC is not the only contract setting records. The CME Group's North European HRC contract set a new monthly record for trade on 29 July, taking the month above 40,000t traded. The CME contract launched in March 2020.


LME HRC fob China forward curve ($/t)

LME HRC fob China forward curve ($/t)


Regional HRC prices go separate ways

Nothing is a given in how markets develop. For more mature markets like oil and non-ferrous, major pricing hubs were established decades ago. For ferrous, it is a work in progress to see how contracts will develop across regions and products.

Right now, three major HRC hubs are trading: China, Europe and US. Traders and consumers can hedge or trade against differences in each region’s fundamentals and policies. The past year has given markets a lot to trade and hedge against, with differences in the regions more apparent.

Global HRC $/t equivalent comparisons

Chinese HRC prices, at less than half the price of US HRC, merely doubled compared with a quadrupling for the latter over the past year. Differences in regional supply and demand as well as in economic, trade and environmental policies are major factors:

  • China a year ago was the sole source of strength in global steel markets after it was the first to emerge from Covid lockdowns, putting its steel price recovery ahead of others.
  • US Section 232 tariffs and anti-dumping duties for steel originating from China and other countries can keep price premiums in the US intact by undoing the arbitrage for imports. The US and Europe have jump-started talks in an effort to loosen the restrictions.
  • Europe will extend its steel import quota system for three years and is outlining major climate and energy policies that could further alter steel trade flows and economics.
  • China has added more taxes on steel exports after a first round in May to reverse the 30pc growth in exports in the first half so that 2021 exports do not exceed the 54mn t in 2020.
  • China has asked its steel industry to flatten steel output growth in the second half. If successful, this will cut its output by 61.6mn t, or 11pc, to 501.7mn t in the second half from the first half to avoid exceeding the 1.065bn t output in 2020.


Related blog posts

29 July 2021

The US Crude Export Chronicles: July 2021

US crude exports are facing serious headwinds this summer including a tight Brent-WTI spread and a looming boost in supply from the Opec+ group of nations. And monthly data has been showing unusual volatility.


Crude oil North America English

29 July 2021

Weight of Freight — Not a magic bullet: Opec+ boost could have little impact on VLCC freight

The 18 July Opec+ deal to steadily unwind its crude oil production cuts through to the end of September next year is certainly a positive development for the VLCC (very large crude carrier) tanker market.


Crude oil Global English Africa Asia-Pacific Europe Latin America and Caribbean Middle East North America

28 July 2021

The Crude Report: Opec’s row resolved

Editor-in-Chief Jim Washer talks to Dubai Editorial Manager Nader Itayim about the Opec+ alliance’s new output agreement, the Saudi-UAE row that nearly derailed it, and the challenges the group could face, not just through to the end of this current deal, but even beyon...


Crude oil Global English Africa Asia-Pacific Europe Latin America and Caribbean Middle East North America FSU