The HRC futures curve has entered a pronounced backwardation, with Q3 2026 contracts trading at $1,160/st and Q4 at $1,080/st, implying the market expects current tightness to ease over the second half of 2026. The backwardation structure reflects expectations of: higher import availability, seasonal Q4 demand moderation, and potential capacity additions from electric arc furnace producers.
Technical resistance at $1,250/st — the January 2023 high — represents the next major upside target if the tariff-induced supply constraints persist. A break above $1,250 opens a path to $1,400, the post-COVID peak. On the downside, $1,100 (April consolidation zone) provides the first support, followed by $1,000 (psychological) and $950 (200-day moving average).
The 14-day RSI at 62 suggests the rally has room to extend before reaching overbought conditions (>70). The Moving Average Convergence Divergence indicator recently generated a bullish crossover, supporting the near-term upward momentum.
Key risk factors that could break the backwardation include: (1) a US-China trade deal that reduces tariff barriers and allows more Chinese steel to enter US markets via third countries, (2) a recession-driven demand decline in construction and automotive sectors, or (3) the restart of idled blast furnace capacity at U.S. Steel's Granite City Works or Cleveland-Cliffs' Indiana Harbor.
The backwardation favors spot buying over long-dated fixed contracts. Buy Q3 requirements spot and layer Q4 hedges at $1,080-1,100. If the backwardation holds, a ladder strategy buying at each quarter maximizes flexibility. Monitor US-China trade negotiations closely — a tariff deal is the single largest downside risk for HRC.