FRIEDMAN INDUSTRIES INC

7. DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, we expect to utilize futures, options or swaps to manage our exposure to metals price risk that is inherent in our business. During fiscal2026 and fiscal2025, all of the Company's hedging activities were classified as economic hedges of risk with mark-to-market ("MTM") accounting treatment. By using derivatives, the Company is exposed to credit and market risk. The Company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. The Company attempts to minimize its credit risk by entering into transactions with high quality counterparties, and uses exchange-traded derivatives when available. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices. The Company manages market risk by continually monitoring exposure within its risk management strategy and portfolio. For any transactions designated as hedging instruments, we document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking the various hedge transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows or fair value of hedged items.

The Company has forward physical purchase supply agreements in place for a portion of its monthly physical steel needs. These supply agreements arenot subject to mark-to-market accounting due to the Company electing the normal purchase normal sale exclusion provided in ASC815.

At* March 31, 2026* and2025, the Company didnot have any derivatives designated as hedging instruments and classified as cash flow or fair value hedges.

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The following table summarizes the fair value of the Company’s derivative financial instruments and the respective line in which they were recorded in the Consolidated Balance Sheet as of* March 31, 2026* (in thousands):

The following table summarizes the fair value of the Company’s derivative financial instruments and the respective line in which they were recorded in the Consolidated Balance Sheet as of* March 31, 2025* (in thousands):

All derivatives are presented on a gross basis on the Consolidated Balance Sheet.

During fiscal2026 and fiscal2025, the Company entered into hot-rolled coil futures and swap contracts that werenot designated as hedging instruments for accounting purposes. Accordingly, the change in fair value related to these instruments was immediately recognized in earnings for these periods. During fiscal2026 and fiscal2025, the Company didnot designate any transactions as hedging instruments for accounting purposes.

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The following table summarizes the gain recognized in earnings for derivative instrumentsnot designated as hedging instruments during fiscal2026 (in thousands):

The following table summarizes the gain recognized in earnings for derivative instrumentsnot designated as hedging instruments during fiscal2025 (in thousands):

The following table summarizes the Company's economic (non-designated) derivative instruments outstanding at* March 31, 2026* (in thousands):

The following table summarizes the Company's economic (non-designated) derivative instruments outstanding at* March 31, 2025* (in thousands):

At * March 31, 2026* and2025, cash of approximately$0.8 million and $0.5 million, respectively, was held by our clearing agent to collateralize our open derivative positions. These cash requirements are included in "Other current assets" on the Company's Consolidated Balance Sheets at* March 31, 2026* and2025.

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