CME North EU HRC contract has record month in July

July became a new volume-record month for the Chicago Mercantile Exchange's (CME's) north European hot-rolled contract (HRC) today, with 10,700t trading.

April was the previous record, when 10,500t traded. The contract launched in March this year.

A 1,000t trade went through today, with September and October clearing at €433-437/t for 500 t/month. The trade, brokered by Henry Herbert at GFI, meant July became the new record.

A new participant entered the market this week.

Argus' underlying NW EU HRC index today was flat at €409/t, taking the month-to-date average to €401.20/t. Today's trade was at a sharp contango, testimony to the market's belief that prices will strengthen after summer as demand returns and import penetration is reduced.

One market participant described the contract as the most encouraging ferrous launch since iron ore, given the trajectory of volumes, open interest stretching out to the middle of next year and as trading firms are already using it to hedge — an admittedly small portion — physical business.

In its first five months of trading, it has done more than double the volume of the exchange's US HRC contract. EU HRC has traded the equivalent of 33,700t since March, whereas the US contract did just 15,760t in its first five months of existence.

The London Metal Exchange (LME) will launch a similar North EU HRC contract later this year, also basis Argus. The LME's own Steel HRC fob China (Argus) contract also has been hitting volume highs of late. July became a new one, with five trading days remaining on Friday 24 July, with 169,730t traded. As of 30 July, more than 194,000t had traded. It took the CME US HRC contract more than 91 months to reach this kind of tonnage, highlighting how phenomenal the tonnage growth has been on the LME contract.

The LME's own US domestic HRC contract traded just 20,880t in the first 30 days of July, a substantial distance behind fob China. The LME's US HRC contract is cash-settled against an index published by Argus competitor S&P Global Platts.

By Colin Richardson